Cathy C. Hunt educates on the issue of a gifted business interest in divorce and whether one spouse can get part of a business that the other spouse was gifted from his or her parents.

Often when people are married one of the spouses has an ownership interest in a family business that was gifted to him or her by a parent or other family member. When a divorce occurs, the court must determine whether the business interest is marital property subject to distribution with the house, retirement and other marital property or whether it is the separate property of the owner-spouse and not subject to distribution.

Under North Carolina law, when parties get divorced the court must first classify property as marital or separate property. Marital property is valued and distributed between the parties. Marital property is defined as all property acquired during the marriage and prior to the date of separation, except property that is classified as separate property. Separate property is defined as all property acquired by a spouse before marriage or acquired by a spouse by bequest, devise, descent, or gift during the course of the marriage. Separate property remains the separate property of the spouse who received the property. However, if during the marriage there is an increase in value of the separate property and that increase is due to the efforts of the owner spouse (“active efforts”), then the increase in value will be classified as marital property and subject to distribution to the parties.

For example, if during the marriage the husband received shares of stock in the family business from his father, that ownership interest in the business is the husband’s separate property, and the wife is not entitled to any of the husband’s interest in the business. However, if during the marriage the husband also worked in the business and his active efforts during the marriage contributed to an increase in value of the business, that increase in value that can be attributed to the husband’s efforts should be classified as marital property and included in the marital estate for distribution. In the alternative, if the husband worked in the business during the marriage but his role was not one that had any impact on the value of the business, then any increase in value should remain the separate property of the husband and not be subject to distribution with the remainder of the marital estate.

Determining efforts that are active such that they contribute to an increase in value of the business and determining an increase in value from merely passive forces such as the economy is a highly technical area of law. When business owners are getting divorced, there are a number of strategic issues involved in valuing the business and analyzing the “active/ passive” factors relative to the owner spouse. One of the most important things a business owner must do when faced with divorce is to retain counsel with experience in business valuation cases to provide essential advice on protecting the rights and assets of the business owner.

Contributor: Cathy C. Hunt: Cathy C. Hunt, Raleigh Family Law Attorney is a leading North Carolina Divorce Lawyer and is experienced in business valuation in cases of separation and divorce. She is a partner with the North Carolina Family Law Firm of Gailor, Wallis & Hunt, PLLC. For more information contact: North Carolina Family Law Firm, Gailor, Wallis & Hunt, PLLC, 1101 Haynes Street, Suite 201,Raleigh, NC 27604,Tel: 919-832-8488, www.gailorwallishunt.com.

Disclaimer: The information contained in this article is intended as a general guide and is not to be used as legal advice by Gailor, Wallis & Hunt, PLLC. Whether or not you may be entitled to take action in regard to the information addressed in this article can only be determined after a thorough review of the facts and circumstances of your case by a qualified family law attorney

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