How Can High-Profile Business Owners Protect Their Assets During Equitable Distribution in North Carolina?

How Can High-Profile Business Owners Protect Their Assets During Equitable Distribution in North Carolina?

What are Grounds for Divorce in North Carolina?

The State of North Carolina stipulates that a divorcing couple must have lived separately for a year and a day before a divorce may be granted. At least one spouse must have lived in North Carolina for six months before the divorce is filed. Alternatively, a divorce may be granted on the grounds of incurable insanity that requires three years of living separately and several other criteria to be upheld. The State does not require proof of fault to pursue divorce proceedings but does consider fault in other matters, such as alimony and property division.

What is a High-Asset Divorce?

While there is no set monetary amount that decides whether a divorce is considered high-asset or not, there is a generally accepted rule that divorces involving household incomes that exceed $250,000 will involve high-value assets. Those assets may include:

  • Real estate properties
  • Multiple cars or other vehicles
  • Family-held or jointly owned businesses
  • Retirement and investment accounts
  • Inheritance and trust interests
  • Expensive or unique collections

How are Assets Divided in a North Carolina Divorce?

Property division in North Carolina is based on an equitable distribution of assets, meaning that marital assets will begin with a 50/50 split between both parties as a starting point for negotiations and arguments. For this process, assets must first be divided into separate and real property.

  • Separate property: This is property that one party either owned independently prior to marriage or property that was received as a gift or inheritance during the life of the marriage.
  • Marital property: Marital property is all of the property that either spouse obtained after marriage and until the date of separation. Typically, it is irrelevant if an asset is only in one spouse’s name as long as it was purchased using funds that both parties contributed to.

Once assets have been categorized, a court will use the following criteria to determine the fair and equitable division of asset allocation.

  • The court will determine the assets and debts retained by each spouse
  • Assets and debts will be categorized as separate or marital
  • A value is placed on each asset and debt
  • Assets and debts are distributed equitably.

It is important to note that “fair and equitable” does not always mean that assets will remain in an even 50/50 split.

How are Businesses Divided During a Divorce?

Businesses founded during the course of a marriage are considered marital assets and are subjected to North Carolina’s equitable division process during a divorce. To accomplish this, the business must be assigned a monetary value for the purpose of financial division. This process is called business valuation and is typically accomplished using a professional business valuator or an appraiser. A complete business valuation will help to ensure that the remaining assets are divided in a fair and equitable fashion.

When the two parties agree, they may split a business with its assets and debts to their liking. When they disagree, the court will ensure the business is divided in any of the following ways:

  • One spouse may buy out the other’s interest in the business. This can be arranged through a series of payments or as a lump sum payment.
  • Both parties may sell the business to a third party and split the proceeds.
  • Both parties may continue to run the business after the divorce is final.
  • The business’s assets may be divided through equitable distribution.

How is Business Value Determined?

There are several options available when determining the fair market value of a business. While this is a process best left to professionals, there are several common approaches used for an estimated worth.

  • Income approach: Previous and current sales, cash flow, and projected future earnings are all investigated to determine the value of a business. Additionally, growth and depreciation possibilities are analyzed to get a complete understanding of the past, present, and future value of the business.
  • Market approach: For a market approach, an appraiser will compare the business to other similar businesses and consider aspects such as future viability and prospects. The appraiser will also consider the role of the business in the local community and the prices in comparison to similar businesses. This is a good approach to take if the marital business will be sold during a divorce.
  • Asset approach: Put simply, this approach subtracts a business’s liabilities from its assets, and the result determines the value of the business. The process can quickly become complicated when dealing with unrecorded assets like intellectual property and goodwill. This approach typically works best for smaller businesses that have fewer variables and intangible assets.

How is Fair Market Value Determined?

Business valuation experts employ a number of different strategies in determining the fair market value, such as:

  • Type of business and its history
  • Potential future earnings
  • Stock value and financial condition of the company
  • Intangible value or goodwill
  • General economic outlook/ specified industry outlook

How are Businesses Protected in Divorce?

One of the easiest ways to protect any asset in the event of divorce is by using a pre-nuptial or post-nuptial agreement. These are agreements either before or after marriage that outline certain agreements should a divorce occur. These legal documents are particularly helpful when dealing with high-value assets and business ventures.

Do I Need an Attorney?

You worked hard for the prosperity of your business. If you would like to ensure that your interests are protected, call Kreider Attorneys at Law today at 336-550-1210 or fill out a contact form for a consultation.