If you or your spouse owns a business, it may be one of the most valuable—and most difficult—assets to divide in a South Carolina divorce.

The business may provide most or all of the family’s income. One spouse may run the company while the other takes care of the household, raises the children, keeps the books, or helps behind the scenes. The business may also have been started before the marriage, even though both spouses depended on it throughout the marriage.

In a South Carolina divorce, dividing a business usually involves three questions:

1. Is the business marital property?
2. What is the business worth?
3. How can its value be divided without harming the company?

The answers depend on when the business was acquired, how the spouses treated it during the marriage, and the financial evidence available to the court.

Is a Business Marital Property in South Carolina?

Under South Carolina Code § 20-3-630, property acquired during the marriage is generally marital property, regardless of whose name appears on the title.

That means a business started during the marriage may be marital property even if:

• Only one spouse owns the shares;
• Only one spouse’s name appears on the business license;
• Only one spouse works at the business; or
• The business accounts are kept separate from the couple’s joint accounts.

Legal title is not the deciding factor in a divorce in South Carolina. The court looks at when and how the business was acquired.

If the business is marital property, the court must determine its value and include that value in the overall division of the marital estate.

What If the Business Was Started Before the Marriage?

A business owned before the marriage generally begins as the owner’s nonmarital property. However, that does not always mean the entire business will remain separate.

There are two major ways part or all of a premarital business can become subject to division.

Growth Caused by the Other Spouse’s Efforts

South Carolina law generally treats an increase in the value of nonmarital property as separate property. An exception may apply when the increase resulted directly or indirectly from the other spouse’s efforts during the marriage.

Those efforts might include:

• Working for the business;
• Keeping the books or handling payroll;
• Managing employees or customers;
• Helping obtain loans;
• Contributing marital money to the company;
• Caring for the home or children so the owner could build the business; or
• Giving up a career or retirement benefits to support the company.

A spouse does not have to be a legal owner or receive a paycheck to have contributed to the growth of a business.

Transmutation Into Marital Property

A premarital business may also become marital property through a legal principle known as transmutation.

Transmutation occurs when the spouses’ actions show that they treated separate property as property of the marriage. The spouse claiming transmutation must present objective evidence that the couple regarded the business as part of their shared marital estate.

Evidence may include:

• Mixing business and marital funds;
• Paying household bills directly from business accounts;
• Using marital income to pay business debts;
• Using the marital home or other marital property as collateral;
• Both spouses working in the business;
• Reinvesting family income into the company;
• Treating the business as both spouses’ retirement plan; or
• Making financial decisions based on the understanding that the business would support both spouses in the future.

Transmutation depends on the couple’s conduct and intent. No single fact decides every case.

Does Supporting the Entire Family Make a Premarital Business Marital?

Not automatically.

The fact that a business was the marriage’s sole or primary source of income is important evidence, but South Carolina courts have said that merely using income from separate property to support a marriage is not always enough to prove transmutation.

There usually must be additional evidence showing that the spouses treated the business itself—not just the income it produced—as marital property.

For example, in Edwards v. Edwards, the South Carolina Court of Appeals upheld the transmutation of an interest in a produce business. The spouses lived on the income, the wife worked extensively in the business, and marital funds were used to build equity in it. Those facts showed more than the passive receipt of business income. They showed shared labor, shared investment, and an intent to treat the business as part of the marriage. Read the Edwards decision.

In Pittman v. Pittman, the court upheld a finding that a premarital surveying business had become marital property. The spouses pooled their earnings, the wife worked in the company, and she gave up other employment and retirement opportunities with the expectation that the business would support them both. Read the Pittman decision.

Therefore, if a premarital business supported the entire family, the court may also look for evidence that:

• Both spouses contributed to its operation or success;
• Marital money was reinvested in the company;
• Business and personal finances were commingled;
• The nonowner spouse made career or financial sacrifices; or
• The spouses treated the company as their shared source of long-term financial security.

If the entire business was transmuted, its premarital value may also become part of the marital estate. If the business itself remained separate, the portion of its appreciation caused by the other spouse’s efforts may still be marital.

How Is a Business Valued in a South Carolina Divorce?

Once the court determines what portion of the business is marital, the next question is its fair market value.

The number shown on a tax return or balance sheet may not represent the business’s actual value. A business may own appreciated property, pay personal expenses for an owner, or produce income that is not obvious from its financial statements.

A qualified business appraiser generally considers three main valuation approaches:

1. The income approach;
2. The asset approach; and
3. The market approach.

The appropriate method depends on the type of business, its financial history, its assets, and the availability of reliable information.

1. The Income Approach

The income approach values a business based on the money it is expected to produce.

In basic terms, the appraiser asks:

What would a buyer pay today for the future income this business is reasonably expected to generate?

This approach is often used for an established, profitable operating business. It may involve capitalizing historical earnings or estimating future cash flow and converting it into a present value.

Before performing the calculation, the appraiser will usually normalize the company’s financial statements. Normalization attempts to show how the business would perform under ordinary ownership.

Possible adjustments include:

• Replacing the owner’s actual salary with reasonable market compensation;
• Removing personal expenses paid through the company;
• Adjusting payments to relatives;
• Removing one-time income or expenses;
• Correcting above- or below-market rent;
• Accounting for unusual legal or repair expenses; and
• Separating legitimate business expenses from discretionary owner benefits.

Small changes to expected earnings or valuation rates can significantly affect the final number. That is one reason divorcing spouses sometimes receive very different valuations from their respective experts.

2. The Asset Approach

The asset approach calculates the value of the company’s assets and subtracts its liabilities.

The assets may include:

• Cash;
• Accounts receivable;
• Inventory;
• Equipment and vehicles;
• Real estate;
• Intellectual property;
• Contracts or licenses; and
• Other tangible or intangible property.

Liabilities may include business loans, unpaid bills, taxes, lease obligations, and other debts.

The appraiser may need to adjust the values shown in the accounting records. For example, real estate may be worth much more than its original purchase price, while older equipment may be worth less than its stated book value.

The asset approach is commonly considered for:

• Real-estate holding companies;
• Equipment-heavy businesses;
• Construction companies;
• Investment entities;
• Businesses with weak or inconsistent earnings; and
• Companies that may be liquidated rather than continued.

Book value is not necessarily fair market value. A proper valuation should consider what the company’s assets and liabilities are actually worth.

3. The Market Approach

The market approach compares the company to similar businesses that have been sold.

The appraiser may consider:

• Sales of similar privately held businesses;
• Transactions involving comparable companies;
• Industry valuation multiples;
• Prior offers to purchase the business;
• Buy-sell agreements; or
• Recent sales of interests in the same company.

This method is similar to using comparable home sales in a real-estate appraisal.

The challenge is finding truly comparable businesses. Two companies in the same industry may have very different values because of their size, location, profitability, customers, employees, or dependence on the owner.

A recent arm’s-length offer or sale can be strong evidence of value, but it must still be examined carefully. The purchase price may include employment agreements, noncompete payments, real estate, equipment, or other items that require separate treatment.

What Is Business Goodwill?

Some businesses are worth more than their physical property and financial accounts. That extra value may be called goodwill.

South Carolina distinguishes between two types of goodwill.

Enterprise Goodwill

Enterprise goodwill belongs to the business and can continue after the current owner leaves. It may arise from:

• An established company name;
• A desirable location;
• Trained employees;
• Operating systems;
• Customer relationships;
• Contracts;
• Recurring revenue; or
• A reputation associated with the company rather than one person.

Enterprise goodwill may be marital property subject to division.

Personal Goodwill

Personal goodwill depends on the individual owner’s reputation, skills, relationships, or professional ability. It may disappear if that person stops working at the company.

Personal goodwill is generally not divided as marital property in South Carolina.

This distinction can be particularly important for medical practices, dental practices, law firms, consulting companies, sales businesses, and other companies centered on one person’s professional reputation.

The South Carolina Supreme Court discusses these rules in Moore v. Moore and Bostick v. Bostick.

Will the Court Make Former Spouses Continue Owning the Business Together?

Usually, the goal is to avoid forcing divorced spouses to continue operating a closely held business together.

In many cases, the spouse who runs the company keeps it. The other spouse then receives his or her share of the marital value through:

• Cash;
• Other marital assets;
• A lump-sum buyout;
• Installment payments;
• A promissory note secured by business or personal property; or
• A combination of these options.

A sale may be considered when neither spouse can afford a buyout or when continued operation is not practical.

Under South Carolina Code § 20-3-660, the family court may order a sale, make a monetary award, or use other reasonable means to reach an equitable result.

Does Each Spouse Automatically Receive Half of the Business?

No. South Carolina uses equitable apportionment, which means a fair division based on the circumstances. It does not guarantee a 50/50 division of every asset.

The court considers the factors listed in South Carolina Code § 20-3-620, including:

• The length of the marriage;
• Each spouse’s contributions to the marital estate;
• Contributions as a homemaker;
• Each spouse’s income and earning potential;
• The spouses’ nonmarital property;
• Debts and liens;
• Tax consequences;
• Alimony;
• Child-custody arrangements; and
• Other relevant circumstances.

The court may award the business to one spouse while dividing the total marital estate in a way that gives the other spouse an equitable share of its value.

What Records Are Needed to Value a Business?

Important financial records may include:

• Business and personal tax returns;
• Profit-and-loss statements;
• Balance sheets;
• Bank and credit-card statements;
• General ledgers;
• Payroll records;
• Accounts-receivable reports;
• Loan applications;
• Depreciation schedules;
• Ownership or operating agreements;
• Buy-sell agreements;
• Prior business appraisals;
• Purchase offers; and
• Records of personal expenses paid by the company.

When transmutation is disputed, evidence showing how the family and the business supported each other may be equally important. Emails, bank transfers, loan documents, payroll records, calendars, and testimony about each spouse’s work and sacrifices can help establish how the business was treated during the marriage.

Frequently Asked Questions

Can my spouse receive part of a business that I owned before marriage?

Possibly. The business may remain nonmarital, but appreciation caused by your spouse’s efforts may be marital. The entire business could also become marital if the evidence proves transmutation.

Does my spouse have an interest if only my name appears on the business?

Possibly. Ownership documents do not control whether property is marital under South Carolina law.

Is business income the same as business value?

No. Income is money generated by the business. Value is what the ownership interest is worth. Income may affect business valuation, alimony, child support, and each spouse’s earning capacity, but those issues require separate analysis.

Can personal expenses paid by the business affect its value?

Yes. An appraiser may add back personal or discretionary expenses when calculating the company’s true earning capacity.

Can one appraiser represent both spouses?

The spouses may agree to use a neutral appraiser, but each spouse should understand the appraiser’s role and have independent legal advice. In disputed cases, each side may hire a separate expert.

Can the court order the business sold?

Yes. South Carolina law permits the family court to order a public or private sale of marital property. However, courts may use a buyout or an award of other property when that approach is more practical.

What happens if the business is the family’s only source of income?

The court must consider both the business’s marital value and the practical need to preserve its ability to operate. Its importance to the family may also be relevant to transmutation, equitable division, alimony, and the structure of any buyout.

This article provides general information about South Carolina law and does not constitute legal advice. The classification, valuation, and division of a business depend on the facts of each case.