Often when people marry one of the spouses has an ownership interest in a home that was purchased prior to the date of the marriage. When a divorce occurs, the court must determine whether the interest in the home is marital property subject to distribution with the personal property, retirement and other marital property or whether it is it the separate property of the owner-spouse and not subject to distribution.

Classification: Marital/ Separate Property

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.

Special Rule Regarding Real Estate

Under North Carolina law, real property acquired prior to the marriage or with separate funds which would ordinarily be the separate property of the spouse/ owner is presumed to be a gift to the marriage if the spouse titles the property as tenancy by the entireties. The presumption can be overcome, but it is the burden of the spouse claiming it was not a gift to show that he or she did not intend for it to be a gift to the marriage. The burden is very high to show that a gift was not his or her intent. Testimony alone is not enough. Additional evidence is required to overcome the presumption that a gift to the marriage was not intended when the owner spouse titled the property as tenancy by the entireties

Hidden Refinance Danger for Spouses

Very often when the owner/ spouse refinances the house, the mortgage company suggests or may insist that title be put in both spouses’ names. One of the reasons given is that the house can pass to the other spouse automatically in the event of the death of one of the spouses. However, the act of titling the house as tenancy by the entireties triggers the legal presumption that the owner spouse intended to gift his or her interest in the house to the marriage.

Active Efforts Create Marital Property

When 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 should be classified as marital property and subject to distribution to the parties. With respect to real property, active efforts include payment on the mortgage with income earned during the marriage or increasing the value of the home through additional improvements paid for with income earned during the marriage or with sweat equity.

Analyzing the conditions surrounding the titling of property and the intent of the parties as well as analyzing efforts that are active such that they contribute to an increase in value of the property versus an increase in value from merely passive forces such as the economy are highly technical areas under the law. When parties are getting divorced, there are a number of strategic issues involved in analyzing the transferring intent and the “active/ passive” factors relative to the owner spouse. One of the most important things a spouse must do when faced with divorce is to retain counsel with experience in real property issues in marital dissolution cases to provide essential advice on protecting the rights and assets of the real property 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

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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By: Contributing Attorney: S. Nicole Taylor. Nicole Taylor, a Raleigh Family Law Attorney, is a leading North Carolina Divorce Lawyer. Ms. Taylor is a member of the North Carolina Family Law Firm of Gailor, Wallis & Hunt, PLLC.

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Valuing the Business

When a couple gets divorced, typically, counsel for both spouses will hire an expert to value the business, and more often than not, the experts’ values are miles apart – sometimes to the tune of millions of dollars.

Getting a credible and supportable appraisal of the business is one of the most critical steps a divorcing business owner should take to protect his or her business.     To obtain an appraisal that is accurate and will be accepted as an “expert opinion” by the Court, getting the right advisors on board for legal and business-valuation advice is critical. (more…)

When spouses are getting divorced, North Carolina law requires that assets acquired during a marriage be valued so that the marital estate can be fairly distributed to the divorcing spouses.When a divorcing spouse owns a business, the business interest must be valued as part of the marital estate. Frequently, only one of the spouses actually operates the business, although the other may own shares. (more…)