Business Owners Beware: Transmutation and Divorce

Business, more than any other occupation, is a continual dealing with the future; it is a continual calculation, an instinctive exercise in foresight – Henry R. Luce

When you own a business, it is important to keep in mind the implications that transmutation of that property interest may have in the event of a divorce.  Recently, in Pittman v. Pittman, the South Carolina Supreme Court addressed the issue of transmutation of a spouse’s business, thereby subjecting the spouse’s business to apportionment by the family court.

In Pittman v. Pittman, the South Carolina Supreme Court looked at whether one spouse’s land surveying business would be considered marital property subject to equitable division.  The Court found that transmutation of the husband’s land surveying business to marital property had occurred.  It went on to explain that, because “the evidence preponderates in support of a finding that the parties intended the land surveying business to be the common property of the marriage,” the business was transmuted to marital property.  Although the husband argued that even if the business was transmuted into a marital asset, he would still be entitled to receive a special equity interest in the value of the business as of the date of the parties’ marriage, Justice Kittredge disagreed.  In Justice Kittredge’s opinion, the Court stated that “(w)hen property is determined to have been transmuted, the entire property, not just a portion of the property, is included in the parties’ marital property which is thereafter apportioned by the family court using the criteria set forth in [the equitable apportionment statute].” In other words, once the husband’s business was determined to have been transmuted, the full value of the business was appropriately included in the marital estate.  The Court further noted that the family court erred in considering the wife’s premarital contributions in the operation of the business as one of the transmutation factors; instead, the Court pointed out that the contributions to be considered for purposes of transmutation are limited to those made during the marriage.

You can read the entire opinion of Pittman v. Pittman: http://www.sccourts.org/opinions/HTMLFiles/SC/27352.pdf.