How Does the Family Court Divide “Marital” Property?
The family court has authority to divide “marital” property as part of any divorce or separate maintenance action. Because South Carolina recognizes common law marriage, couples married at common law can seek the family court’s assistance in dividing their property. See What is Common Law Marriage? However, the family court cannot divide property if the parties are (or were) merely living together in romantic relationship but were not married. Such couples must file a partition action in circuit court to divide their property.
There are a couple of common misconceptions regarding how the court divides marital property. One is that all property either spouse owns is marital property. Another is that the court divides marital property 50/50. Both misconceptions have elements of truth but are not entirely true.
Marital property is defined in South Carolina Code Section 20-3-630. Whether marital property is titled in one spouse’s name or the other’s (or both) is immaterial to the court’s ability to divide it. Typically all property acquired by either spouse during the marriage (up to the date of filing) is marital property and all property owned by either spouse prior to the marriage (or after filing) is not. However there are important and frequently occurring exceptions to both of these general rules.
Despite being acquired during the marriage, property acquired by either party by inheritance, devise, bequest, or gift from a party other than the spouse does not become marital property. Property excluded by written contract of the parties (such as in a pre-nuptual agreement) does not become marital property. Property exchanged for premarital property does not become marital property. The increased value of premarital property does not become marital property except to the extent that the increase resulted directly or indirectly from efforts of the other spouse during the marriage.
Further, some property owned by one spouse prior to the marriage (or obtained by that spouse during the marriage via gift, bequest or inheritance) can become marital property. When marital and non-marital property are commingled so that it cannot be determined which of the property is marital and which is non-marital, the whole amount becomes marital. This frequently happens when marital funds (which can include either spouse’s income during the marriage) are deposited into an account that was owned by one party prior to the marriage. Thus, if one wishes for pre- or non-marital accounts to remain separate property, one should not deposit marital funds into such accounts.
Another way that pre-marital or non-marital property can become marital is through the process of “transmutation.” Transmutation occurs when the parties evince a clear intent to treat this otherwise non-marital property as marital. A typical example is when one party owns a house prior to the marriage but both parties reside together for a substantial period of time in that house during the marriage and both contribute funds to pay the home mortgage. In that circumstance, the court almost always finds the house to be transmuted into marital property. A harder case is when one spouse’s income is used to do repairs on that spouse’s non-marital property or when both parties reside for years in a home that would not otherwise be marital property. In such circumstances, proving the parties “intent” to treat such property as marital (or not) can be difficult.
Sometimes, even when property is not marital, one spouse can be awarded a special equity interest in that property. This special equity interest can be awarded even when the property is not transmuted. Typically this special equity interest is awarded when one spouse’s direct or indirect contributions increased the value of the other spouse’s non-marital property. A frequent example of this is when one spouse does significant maintenance or repairs to the other spouse’s inherited property or provided the other spouse assistance in obtaining non-marital property.
The family court undergoes a three step process in dividing marital property. The first step is identifying what property is part of the “marital estate,” “which is created at the time marital litigation is filed or commenced…” S.C. Code § 20-3-610. After identifying what property is part of the marital estate, the second step is to value and both the marital property and the non-marital property. Finally, the court “equitably” divides the marital property between the spouses in compliance with the statutory factors.
The marital estate is created when either party files an action for separate maintenance or divorce. The family court cannot divide property that is not part of the marital estate. Often times one party will seek compensation for funds her or she used during the marriage to pay off the other spouse’s debts, However since neither the funds nor the debts remain in existence as of the date of filing, the family court cannot provide compensation. The case of Panhorst v. Panhorst, 301 S.C. 100, 390 S.E.2d 376, 379 (Ct.App. 1990) provides the best explanation of the court’s reasoning:
Marital property is that real and personal property acquired by the spouses during the marriage which is owned by them at the date of filing of marital litigation…The statute embodies the Legislature’s decision that the marital estate must be identified as of a fixed date. Given the vicissitudes of life, the parties’ fortunes will change over the years of a marriage. Often the marital estate may have enjoyed a greater value in the past than it does at the dissolution of the marriage. It may be affected by changes in the incomes and earning capacities of the spouses, their spending habits, their savings and investments, and a host of other factors. By requiring the estate to be identified as of the date marital litigation is filed, the Legislature has elected to foreclose the spouses from litigating every expenditure or transfer of property during the marriage. One spouse or the other may have spent marital funds foolishly or selfishly or may have invested them unprofitably. The statute wisely prevents the other spouse from resurrecting these transactions at the end of the marriage to gain an advantage in the equitable distribution. Were it to do otherwise, human greed and vindictiveness would transform the courts into auditing agencies for every marriage that falters.
There is a limited exception to the general rule that the court does not require spouses to account for pre-filing date financial transactions. “[A] spouse who removes or secretes marital property in contemplation of divorce is required to either account for it or have some part of its value charged against that spouse’s share of the marital property.” Dixon v. Dixon, 334 S.C. 222, 512 S.E.2d 539, 545 (Ct.App. 1999). Further, property acquired after the filing of the action is not marital property, unless it was obtained through the exchange of marital property.
The court then values both the marital and non-marital property. The court must value the non-marital property because the value of a spouse’s non-marital property is a factor to be considered in dividing marital property. Valuation is determined as of the date of filing, though the court can consider both parties’ contributions to any post-filing appreciation or depreciation of this property in making its award. Where the parties cannot agree on valuations, the court can look to the parties’ own opinions, witness testimony, and expert’s opinions in valuing property. So long as there was credible evidence to support the valuation the family court places on property, that valuation will almost never be disturbed on appeal.
After the court has identified what property is marital and what property is not, and values the property, the court must finally equitably divide the marital property. There are numerous factors that the court must consider in dividing this property. A full listing of the factors the family court considers in equitably dividing marital property is contained in South Carolina Code Section 20-3-620.
Probably the most important factors in dividing marital property are the value (which includes encumbrances such as loans or mortgages) of the individual items of property, the length of the marriage, and each spouses’ contribution to the to the acquisition, preservation, depreciation, or appreciation in value of the marital property, including the contribution of a spouse as homemaker. While each party’s contribution to the acquisition, preservation, depreciation, or appreciation in value of the marital property is an important factor in equitable division, the law is clear that the parties are not entitled to an “accounting” of how all funds were generated or spent during the marriage.
Typically, in a long marriage where the parties had and raised children together the court will start with a presumption of an equal division of the marital estate and deviate only slightly from that division based on other factors. The logic behind this is that marriage is, in part, an economic partnership. The court presumes in such lengthy marriages that both parties divided responsibilities in a manner they believed fair and thus both should enjoy the economic benefits of that partnership equally. See e.g., Doe v. Doe, 370 S.C. 206, 634 S.E.2d 51 (Ct.App.2006) and Avery v. Avery, 370 S.C. 304, 634 S.E.2d 668 (Ct. App. 2006). Doe explained this rationale as follows:
While there is certainly no recognized presumption in favor of a fifty-fifty division, we approve equal division as an appropriate starting point for a family court judge attempting to divide an estate of a long-term marriage… Case law seems to bear out this trend…
We recognize that in many long-term marriages, one spouse becomes the primary breadwinner while the other spouse makes less or even no money in order to have the flexibility to keep the household running smoothly. This arrangement is agreed upon, often implicitly, among the parties, and it would be unfair to the spouse who undertook household duties for the family court to apportion the marital estate solely based on the parties’ direct financial contributions…
This equal division of marital assets can, of course, be altered in favor of one spouse depending on the circumstances of each case. Here, for instance, Wife’s adultery caused the breakup of the marriage, an appropriate consideration for equitable apportionment. However, we have consistently held that fault does not justify a severe penalty.
This presumption does not prevent the court from deviating from an equal division, and the court will often do so if there was substantial fault of one party in the marital breakup, if one spouse’s poor health will make it difficult for that spouse to acquire property in the future, if one spouse’s family made significant economic contributions to the marital estate, or if one spouse has significantly greater non-marital assets. However, in long-term marriages deviations greater than a 60/40 division of the marital estate are rare. In shorter marriages the court is more likely to closely analyze each parties’ contributions to the marital estate before dividing the property. Any court order dividing the marital estate must examine all the factors contained in S.C. Code Section 20-3-620.
Often property that is marital can be jointly titled with persons outside the marriage. This typically occurs when one spouse owns property with another family member or when one spouse has a business partnership. The family court has authority to join third parties in a property division case if that party is indispensable to the equitable division of that property. When the amount of one spouse’s interest in the jointly titled property is unclear, it is advisable to join all title holders to that property as part of the case so that the court can properly determine and divide that spouse’s interest.
With few exceptions, equitable distribution is only done once and cannot later be modified without both parties’ consent. Those exceptions are when the parties explicitly agree to reserve some or all equitable distribution issues or when the court reserves jurisdiction to divide designated items of property. The court typically reserves jurisdiction when it will be difficult to value property presently (such as personal injury claims or stock options) that can be more easily valued in the future (when the claim is resolved or the options vest). However, if property is not divided as part of the first equitable distribution order and jurisdiction to divide property is not reserved, the court has no ability to divide property that was not already divided. Thus, it is important to make sure property division claims are investigated thoroughly and resolved completely.
Equitable distribution claims tend to be fact and document intensive. Most property division cases resolve by agreement, without the necessity of the court deciding how to divide property. However, whether one is negotiating a marital property division agreement or preparing for a trial on this issue, a thorough analysis of code sections 20-3-620 and 630 should be undertaken with the following goals: 1) developing evidence that might make the other spouse’s property part of the marital estate and might exclude one’s own property from the marital estate; 2) countering claims that would make one’s own non-marital property part of the marital estate or might exclude the other spouse’s property from the marital estate; 3) maximizing the valuation of property the other spouse is expected to keep and minimizing the valuation of property one hopes to keep (this is not a suggestion that one should waste, destroy, alienate or otherwise encumber such property) and 4) providing evidence that would support a greater allocation of the marital estate or countering claims that the other spouse should receive a greater allocation of the marital estate.
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