Divorce and Business Partnerships

When spouses own a business together, the value of that business will be of issue in their divorce proceedings. How does a divorce affect business ownership when only one spouse holds a partnership interest in a business? The value of the spouse’s partnership interest may be subject to equitable distribution in North Carolina divorces. Our divorce lawyers in Greensboro, North Carolina have the experience and qualifications to handle your unique situation.

There isn’t a statutory requirement or even a legally recognized method to determine such a value, which can make the process complicated and contentious. Case law, however, has determined that there are certain factors that should be considered when attempting to valuate a husband or wife’s partnership interest for the purpose of equitable distribution.

Sharp v. Sharp (NC App. 1994)

Plaintiff Husband and Defendant Wife separated in January 1984, with Husband filing for divorce in July 1985. In August 1985, Wife filed a counterclaim for an equitable distribution of marital assets. The trial court severed the equitable distribution claim, meaning it was separated from the other issues in the divorce and would be heard at a later date. The parties were then granted an absolute divorce in 1987.

In August 1988, the parties agreed to work with a third party toward a resolution, and the trial court appointed a referee to decide on the issues of equitable distribution. The referee filed his report on the matter in July 1992. The trial court judge entered a decision on equitable distribution, including some points that aligned with the referee’s recommendations and some that didn’t. The judge awarded an unequal division of assets, which the judge determined was just and proper. She awarded Wife 56% of the marital estate and Husband 44%, as well as dividing other fees and expenses between them both.

Both Husband and Wife appealed the decision. Husband appealed the trial court’s judgment on equitable distribution, as well as expert witness fees. Wife appealed the judgment on equitable distribution, expert witness fees, and referee fee payment.

There were seven business entities involved in the equitable distribution claim, including a law firm in which Husband held a partnership interest. The appeals court stated that there is not one preferable approach to valuing business practices, and their role was to review if the trial court used an approach that calculated a reasonable approximation of the spouse’s partnership interest.

Ultimately, the appeals court determined that courts should consider four components when valuating law firm partnership interest:

  1. Fixed assets such as cash, equipment, and other supplies
  2. Other assets like accounts receivables
  3. Intangible assets, including reputation
  4. Liabilities

The Court of Appeals declined to reverse the trial court’s decision regarding partnership valuation in this case, finding that Wife did not prove the methodology used by the lower court was inadequate.

Woodruff Family Law Group’s Greensboro divorce lawyers can help you when complex business partnerships are a factor in determining equitable distribution in your divorce.