Equitable Distribution

Equitable Distribution: I acquired my business during
marriage, now what?

It is not uncommon during a marriage that spouses acquire property together. Equitable
distribution put simply, is about figuring out what property each spouse owns at the date of
separation and determining how that property should be distributed among parties. Questions
may arise when a spouse acquires a business during marriage; will said business will be
distributed as marital or divisible property? Or is there any way to rebut the presumption that a
business is marital, even though it was acquired during the marriage? The following
questions/answers act as a helpful guide:

What type of property is subject to equitable distribution?

Only when an asset is classified as marital or divisible property is it subject to
equitable distribution.

When is property considered marital?

According to N.C. Gen. Stat. § 50-20(b)(1):
“‘Marital property’ means all real and personal property acquired by either spouse or
both spouses during the course of the marriage and before the date of the separation of
the parties, and presently owned, except property determined to be separate property or
divisible property in accordance with subdivision (2) or (4) of this subsection. Marital
property includes all vested and nonvested pension, retirement, and other deferred
compensation rights, and vested and nonvested military pensions eligible under the
federal Uniformed Services Former Spouses' Protection Act. It is presumed that all
property acquired after the date of marriage and before the date of separation is marital
property except property which is separate property under subdivision (2) of this
subsection. It is presumed that all real property creating a tenancy by the entirety
acquired after the date of marriage and before the date of separation is marital property.
Either presumption may be rebutted by the greater weight of the evidence.”

When is property considered divisible?

According to N.C. Gen. Stat. § 50-20(b)(4):
“‘Divisible property’ means all real and personal property as set forth below:
a.         All appreciation and diminution in value of the marital property and divisible
property of the parties occurring after the date of separation and prior to the date of
distribution, except that appreciation or diminution in value which is the result of
post-separation actions or activities of a spouse shall not be treated as divisible property.

b.         All property, property rights, or any portion thereof received after the date of
separation but before the date of distribution that was acquired as a result of the efforts of
either spouse during the marriage and before the date of separation, including, but not
limited to, commissions, bonuses, and contractual rights.
c.         Passive income from marital property received after the date of separation,
including, but not limited to, interest and dividends.
d.         Passive increases and passive decreases in marital debt and financing charges and
interest related to marital debt”

When is property considered separate?

According to N.C. Gen. Stat. § 50-20(b)(2):
“‘Separate property’ means all real and personal property acquired by a spouse before
marriage or acquired by a spouse by devise, descent, or gift during the course of the
marriage. However, property acquired by gift from the other spouse during the course of
the marriage shall be considered separate property only if such an intention is stated in
the conveyance. Property acquired in exchange for separate property shall remain
separate property regardless of whether the title is in the name of the husband or wife or
both and shall not be considered to be marital property unless a contrary intention is
expressly stated in the conveyance. The increase in value of separate property and the
income derived from separate property shall be considered separate property. All
professional licenses and business licenses which would terminate on transfer shall be
considered separate property.”

What happens in an equitable distribution case if my spouse or I have an ownership interest in
an LLC or other business entity?

In an equitable distribution case, all property, including any interest in an LLC or
other business entity must be identified. Next, the property will be classified as marital,
separate, or mixed and the net value of the marital and divisible property will be
determined. Lastly, the property will be distributed by the court.

Should the LLC or other business entity be named as a party?

It depends. If the LLC is separate property, the court would not need to name the LLC
as a party because separate property is not distributable in equitable distribution cases.
N.C. R. Civ. Pro. 19(a) governs the necessary joinder of parties, which requires that
parties who are united in interest must be joined as parties. In Campbell v. Campbell, 241
N.C. App. 227 (2015), the court describes why joinder is necessary in certain marital
property cases concerning LLCs:
Where a separate legal entity has not been made a party to an action,
the trial court does not have the authority to order that entity to act.

Moreover, even where named party to an action is a member-manager
of an LLC, the assets of which are contested in a pending equitable
distribution action, the trial court exceeds its authority when it orders
that named party to transfer the assets of the LLC without first adding
the LLC as a party to the action.

What if my spouse and I agree that my business should be considered my separate property,
even though said property was acquired during our marriage and is marital property?

In accordance with N.C. Gen. Stat. § 50-20(d), a trial court has the authority in
equitable distribution cases to establish that property which would normally be
considered marital, may be classified as separate, if during the marriage the parties
entered into a written agreement, fully executed and acknowledged. Furthermore, N.C.
Gen. Stat. § 52-10, explains that contracts between husband and wife which are not
inconsistent with public policy, are in fact valid to release and quitclaim rights which
they might have acquired by marriage in the property of each other. The aforementioned
contract may then be plead in bar of any action or proceeding for the recovery of the
rights and estate so released. Said contract if regarding real estate of either spouse, or the
accruing income thereof must be in writing and be acknowledged by both parties before a
certifying officer, which includes a notary public.

The Mueller Law Firm, P. A. specializes in representing a broad spectrum of clients in all
matters related to divorce, marriage, and the family. The firm’s unique team approach combines
exceptional legal skills and craftsmanship with extraordinary client service. The Mueller Law
Firm, P.A. is well equipped and prepared to handle cases concerning equitable distribution.

Phone: (919) 676-5770

Fax: (919) 676-5534

7000 Harps Mill Rd #203, Raleigh, NC 27615, USA

©2020 by The Mueller Law Firm, P.A.