Dividing Active vs. Passive Assets in a Divorce

Property division during a divorce can be stressful and confusing, especially when it comes to understanding active vs passive assets. In South Carolina, courts treat these two types of assets differently, and the distinction can have a significant impact on the financial outcome of your divorce. At Brinkley Law Firm, LLC, we’re here to help you navigate this process with clarity and confidence.

What Are Passive Assets in a Divorce?

Passive assets are properties or investments that gain or lose value due to external factors like market conditions, rather than active involvement by either spouse. Common examples of passive assets include stocks, bonds, real estate investments, and retirement accounts. These assets often fluctuate in value without requiring any direct effort from the owner.

In South Carolina, passive assets acquired during the marriage are typically classified as marital property, meaning they are subject to equitable distribution. Unlike community property states where assets are divided 50/50, South Carolina courts aim for a fair division based on factors like the length of the marriage, each spouse’s financial contributions, and their future needs.

Valuing passive assets can be tricky, particularly when their value changes significantly during the divorce process. For instance, if the stock market surges or a property appreciates after the divorce is filed, should the valuation reflect the filing date or the trial date? South Carolina courts often seek a balance, choosing the valuation date that most accurately reflects the asset’s worth at the time of division.

How Are Active Assets in Divorce Different?

Active assets, unlike passive assets, require direct involvement or effort to maintain or grow their value. Examples include businesses, professional practices, rental properties actively managed by one spouse, and intellectual property like patents or creative works. Active assets are often more complex to divide because they are closely tied to personal effort, decision-making, or reputation.

In South Carolina, active assets created during the marriage are considered marital property, subject to equitable distribution. If the asset existed before the marriage, only the appreciation in its value during the marriage is subject to division. Determining how much of the asset’s growth is marital property often involves detailed financial analysis.

For example, if a spouse started a business during the marriage, the courts will look at how both spouses contributed to its success. Did the other spouse directly help run the business, or did they indirectly support it by managing the home or taking on other responsibilities? These factors play a key role in how the value of active assets is divided.

Why Are Valuation Dates Important for Active and Passive Assets?

Choosing the right valuation date is crucial when dividing active and passive assets in divorce.
For passive assets, South Carolina courts may choose the date the divorce was filed or the trial date, depending on market conditions. This ensures that neither spouse benefits unfairly from fluctuations in value that occurred after the marriage effectively ended.

Active assets, on the other hand, are typically valued as of the filing date of the divorce. This approach prevents one spouse from benefiting from the other’s efforts after the marital relationship has dissolved. For instance, if a business sees significant growth after the divorce filing, that growth would generally not be included in the division unless it can be traced to contributions made during the marriage.

How Do Contributions Affect Active and Passive Assets in Divorce?

When dividing active and passive assets, South Carolina courts carefully examine the contributions each spouse made to these assets. Contributions can be direct, such as working in a family business or managing rental properties, or indirect, like maintaining the household or supporting the other spouse’s career.

For passive assets, contributions are less of a factor since their value changes due to market forces rather than personal effort. However, for active assets, contributions are a critical consideration. If the non-titled spouse actively participated in growing a business or professional practice, they may be entitled to a larger share of its value. Conversely, if their contributions were indirect, their share may be smaller.

For example, if one spouse started a business during the marriage and the other worked in the business or provided financial and emotional support, the non-titled spouse could claim a portion of the business’s growth. The exact percentage depends on the level and type of contributions made.

Can You Negotiate the Division of Active and Passive Assets?

Negotiation is often a viable option when dividing active and passive assets in divorce. Spouses can work together to create an agreement that reflects their unique financial needs and priorities. This is especially helpful when dealing with assets that are difficult to divide, like businesses or investments.

For example, one spouse might retain ownership of a family business, while the other receives a larger share of passive assets like retirement accounts or real estate. This type of trade-off can help both parties achieve a fair outcome without the need for prolonged litigation.

Tax considerations are another important factor during negotiations. Transferring ownership of active or passive assets may have tax consequences that affect their overall value. Working with a skilled and knowledgeable family law team like Brinkley Law Firm is essential to ensure that all aspects of the agreement are fair and equitable.

How Does Equitable Distribution Work in South Carolina?

South Carolina follows the principle of equitable distribution, which means the court divides marital property fairly, not necessarily equally. The court considers a range of factors, including the length of the marriage, each spouse’s financial contributions, their earning potential, and their future financial needs.

For active and passive assets in divorce, this approach allows the court to account for the unique circumstances of each couple. For instance, if one spouse has greater earning potential, the court might allocate more assets to the other spouse to ensure a balanced outcome.

Equitable distribution also provides flexibility when dealing with complex assets like businesses or investments. The court can tailor its decisions to reflect each spouse’s contributions and the specific nature of the assets in question.

Contact Brinkley Law Firm; Your South Carolina Divorce Advocates

Dividing active and passive assets in divorce is a complicated process that requires careful consideration of financial, legal, and emotional factors. Having an experienced South Carolina divorce attorney on your side can make all the difference.

At Brinkley Law Firm, we understand the challenges you’re facing and are here to help you through every step of this transition. We work tirelessly to ensure your assets are accurately valued and fairly divided. Whether you’re dealing with a family business, investment portfolio, or other marital assets, we’ll advocate for your interests and ensure that everything goes as smoothly as possible.

If you’re facing a divorce and have questions about active and passive assets, contact Brinkley Law Firm today for a consultation. We’re here to provide the guidance and support you need to move forward with confidence.