Property Division in South Carolina
When two people divorce, one of the primary issues is how the property will be divided. Property division in South Carolina is governed by the Equitable Apportionment of Marital Property Act, S.C. Code § 20-3-610.
Generally, the parties start with a 50/50 split, which may be modified based on the circumstances. Property is most commonly divided by agreement. Absent an agreement, the Family Court will equitably divided the property accumulated during the marriage.
At the time of divorce, spouses will equitably divide marital property. Equitable distribution is based on the principal that among other things, marriage is an economic partnership. When a marriage is dissolved, property that was accumulated during the marriage is divided in a manner that fairly reflects each spouse’s contribution to its procurement, irrespective of which spouse holds legal title. Contribution to the acquisition of property is not limited to economic contributions. The objective in dividing marital property is to separate all joint interests as completely as possible except where compelling circumstances require preserving joint ownership.
Property division must be sought in the pleadings at the time of divorce. If not plead and decided at the time of divorce, the Family Court can only divide marital property in limited circumstances.
Final orders on equitable distribution are not modifiable. So, absent an appeal, the Court’s ruling on property division is irreversible regardless of a later change in circumstances.
What is Marital Property?
Marital property is all property accumulated during the marriage that does not fall into an established exception. This includes is all real and personal property acquired during the marriage and prior to the date of filing, regardless of how title is held. The term includes assets as well as debts. All marital property is subject to division at the time of divorce.
Non-Marital property is generally property acquired prior to the marriage or after the commencement of marital litigation, property acquired by inheritance or gift from someone other than the other spouse, property acquired with proceeds from either of the former, or property excluded by contract. Property excluded by contract is based on a prenuptial agreement or postnuptial agreement.
Property acquired during the marriage is presumed to be marital. A party arguing otherwise has the burden to prove the non-marital nature character of the property.
Disputes over the marital nature of businesses as well as their value are increasingly common. Marital businesses will be assessed a fair market value as an on going business and accordingly apportioned. Experts are often necessary in assessing both the total value of a business as well as the value of the marital portion.
Commonly, a business valuation will focus on factors such as inventory, accounts payable and receivable, other fixed assets such as real estate and fixtures, and other legitimate assets and liabilities. Goodwill may also be considered where it attaches to the business itself. The distinction between goodwill is centered on enterprise goodwill versus personal goodwill. The former may be divisible as part of the marital estate, while the latter may not.
Retirement benefits, pensions, and contributions to IRAs and 401(k)s made or acquired during the marriage are subject to division. There are two major ways that these assets are considered in equitable division. First, the spouse who holds the retirement asset may retain the whole plan, and the other spouse may be compensated by an offsetting piece of marital property. Second, and most commonly, retirement plans can be divided through a Qualified Domestic Relations Order (QDRO).
A QDRO is a Court Order that creates a right for an alternate payee to receive a portion of a retirement benefit. An alternate payee is any spouse, former spouse, or dependent of a participant who is recognized as having a right to receive a portion of the participant’s benefits. QDROs are important because most pension plans are generally restricted to making payments to one person and are unassignable. Assets held in certain types of retirement accounts cannot be removed without paying taxes and penalties. QDROs allow both of theses things to occur incident to marital litigation. The IRS requires a QDRO to contain specific language. The complexity of the Order often depends on the individual plan and plan administrator.
Certain retirement benefits such as social security and disability benefits are not subject to equitable division. However, each of these would be an economic factor to be considered in apportionment and support awards.
Special valuation rules also apply to retirement benefits and pensions. The two most common methods are present cash value and distribution from each payment. The present cash value tends to be used most often, largely because it promotes finality and severance of the marital portion of a retirement benefit. The downside is the occasional difficulty in valuation. Traditional retirement plans such as IRAs and 401(k)s are much easier to value, but may require division of marital and non-marital interests.
Apportionment is basically the allocation of property between spouses before it is divided. A number of factors will be considered by the Court in apportioning marital property. One of the most significant is the length of the marriage. The court “must” give weight to the duration of the marriage and the age of the parties at the time of marriage and divorce in making an apportionment of marital property. Though the law isn’t specific, the presumption is that marital property in long marriages will be divided 50/50. Other factors such as marital fault, specific contributions of the parties, income, health, non-marital property of each spouse, retirement benefits, and existence of spousal support will also be considered.
Distribution- How Will the Property be Divided?
The general rule is that a Family Court Judge may divide property in any manner he or she deems reasonable. As with many other areas of matrimonial law, the tiral judge has broad discretion in how marital property will be divided. Where possible, the Family Court will attempt in-kind distributions. In circumstances where in-kind distributions are not feasible or appropriate, the Court may order property sold and the proceeds divided. The end goal of any distribution is to sever all joint ties as completely as possible unless compelling circumstances exist.
There are four basic steps in dividing marital property:
- The Family Court (or the parties to an agreement) will identify the marital property that is subject to division
- Fair market value will be determined
- Proportionate contributions, both direct and indirect, of each spouse will be identified
- The property is equitably divided.
Where ownership of businesses are concerned, the court will generally not leave the parties in a position where they will be forced to do business together. So, it is usually inappropriate to award a percentage of a closely held business to the non-operating spouse. Even where both spouses are actively involved in the business, it is uncommon for both spouses to retain their interest on divorce. Most commonly, the severance of one party’s interest is accomplished by a buy-out; either wish cash or through receipt of other marital property. Joint ownership will only be retained in compelling circumstances or by agreement.
Transmutation & Special Equity
When does non-marital property become marital?
Special Equity refers to a basis in which a spouse may claim an interest in marital property or sometimes non-marital property. Where one spouse makes a material contribution to the other spouse’s acquisition of a piece of property, special equity exists. A common example where special equity is raised would be one spouse’s contribution to the mortgage on a home that the other spouse purchased prior to the marriage. The argument also arises in the context of business owned by one spouse.
Transmutation refers to the transformation of non-marital into marital. The primary question is whether one spouse intended to make a piece of non-marital property marital. This is commonly shown by changing into joint names, commingling non-marital funds with martial funds, using marital funds to build equity in a non-marital venture, or otherwise exchanging non-marital for marital property.
While taking one of the above-mentioned steps by itself may not be sufficient to show transmutation, individuals with significant non-marital property should be careful when handling non-marital property. Premarital agreements are extremely helpful in setting out expectations as to what is and what isn’t marital, as well as what will and won’t become marital. These agreements are especially helpful for those entering second or third marriages, entrepreneurs, and those who wish to preserve assets for children from a prior relationship.
Temporary Orders & Property
While litigation is pending, a temporary order is often issued that decides who will have possession of what property. Commonly, the temporary order decides who will remain in the marital home while litigation proceeds. The temporary order also often contains restraining orders against disposing of, encumbering, or destroying marital property. For this reason alone a temporary hearing is often recommended where there are marital assets, even if there aren’t children’s issues involved.
When one spouse disposes of or destroys an asset during divorce proceedings to prevent the other spouse from receiving a fair share, the value will generally be calculated at the date of filing even though the specific piece of property may no longer exist. The entire value of the disposed asset will generally be credited against the wrongdoer’s share, which sometimes leads to severe consequences.
When spouses are separated for a long time prior to filing for divorce or separate maintenance, valuation issues become more complicated. Often, a date other than the commencement of litigation is used to prevent unfair results. An example of this principle being applied would be the denial of one spouse’s claim in the other’s business where the business really took off after the separation but before the divorce.