Special Equity Interest in SC Divorce

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Special Equity Interest in SC Divorce

Special Equity Interest in SC Divorce
When facing divorce in South Carolina, understanding how property will be divided is crucial to protecting your financial interests. While most people are familiar with the concept of marital property division, fewer understand the doctrine of special equity interest—a legal principle that can significantly impact property distribution even when property is titled in only one spouse’s name. This comprehensive guide explains what special equity interest is, when it applies, and how it could affect your divorce case.

What is Special Equity Interest?
Special equity interest is a legal doctrine in South Carolina family law that allows one spouse to claim an equitable interest in property that is titled solely in the other spouse’s name. Unlike marital property, which is acquired during the marriage, special equity interest typically applies to non-marital property—such as property owned before marriage, inherited property, or gifts from third parties—when one spouse has contributed to increasing its value during the marriage.

South Carolina Code Section 20-3-610 establishes that during marriage, each spouse acquires a vested special equity and ownership right in marital property. However, the special equity doctrine extends beyond purely marital property to provide a remedy when one spouse’s contributions have enhanced the value of the other spouse’s non-marital property.

How Special Equity Interest Differs from Other Property Concepts
Special Equity vs. Marital Property
Marital property consists of all real and personal property acquired during the marriage, regardless of how it is titled. This property is subject to equitable distribution by the family court. Special equity interest, by contrast, applies to non-marital property when one spouse has contributed to its appreciation in value. The property remains non-marital, but the contributing spouse gains an equitable interest in the increased value.

Special Equity vs. Transmutation
Transmutation occurs when non-marital property is converted into marital property through the parties’ clear intent to treat it as jointly owned. For example, if one spouse owns a home before marriage but both spouses reside in it for many years, pay the mortgage together, and make improvements jointly, the property may be transmuted into marital property. Once property is transmuted, it becomes fully marital and subject to equitable distribution.

This is a critical distinction: special equity interest can be awarded even when property has not been transmuted. As South Carolina courts have established, particularly in cases like Dawkins v. Dawkins, once property is fully transmuted into marital property, there is no separate special equity claim—the entire property is simply marital. However, when property remains non-marital but one spouse has contributed to its increased value, a special equity interest may be appropriate.

Special Equity vs. Commingling
Commingling occurs when marital and non-marital property are mixed together in a way that makes it impossible to distinguish between them. When property is commingled beyond the ability to trace its origins, all of the property typically becomes marital. A common example is depositing both marital income and non-marital inheritance funds into a joint account and using them interchangeably over many years. Special equity interest, however, applies when non-marital property remains identifiable but has been enhanced by the other spouse’s contributions.

Requirements for Establishing Special Equity Interest
South Carolina courts have established that a spouse seeking special equity interest in the other spouse’s non-marital property must demonstrate three key elements:

1. Appreciation During the Marriage
The property must have increased in value during the marriage. This could be through active appreciation (improvements, maintenance, or management) or passive appreciation (market forces). However, for a special equity claim, the focus is typically on active appreciation resulting from one spouse’s efforts or contributions.

2. Material Contribution by the Claiming Spouse
The spouse claiming special equity interest must have made material contributions to the increased value of the property. These contributions can be either direct or indirect. Direct contributions include physical labor (repairs, renovations, maintenance), financial contributions (paying for improvements or maintenance), or management efforts (handling rental properties, overseeing renovations). Indirect contributions might include homemaker services that allowed the property-owning spouse to focus on improving or maintaining the property, or financial support that freed up resources for property enhancement.

3. Causation Between Contribution and Appreciation
There must be a causal link between the claiming spouse’s contributions and the increase in the property’s value. Courts look at whether the contributions materially affected the property’s appreciation. For instance, if a spouse performs extensive renovations on inherited property that significantly increases its value, the causation element is clearly met. However, if a property’s value increases solely due to general market appreciation without any contribution from the non-owning spouse, special equity interest would not apply.

Common Examples of Special Equity Interest
Inherited Real Property
One of the most common scenarios involves inherited real estate. Suppose one spouse inherits a house from their parents before or during the marriage. The house is non-marital property. However, during the marriage, the other spouse performs significant maintenance and improvements—replacing the roof, updating the kitchen, maintaining the landscaping, and making structural repairs. These contributions increase the property’s value from $200,000 to $250,000. The contributing spouse may be entitled to a special equity interest in the $50,000 appreciation, even though they have no ownership interest in the underlying property.

Pre-Marital Property with Mortgage Reduction
Consider a situation where one spouse purchased a rental property before marriage. During the marriage, the non-owning spouse manages the property, handles tenant issues, arranges repairs, and marital funds are used to pay down the mortgage. Even if the property itself remains non-marital, the non-owning spouse may have a special equity interest in the mortgage reduction and any appreciation attributable to their management efforts. South Carolina courts have recognized this principle, awarding special equity based on both improvements made during marriage and the reduction in mortgage balance achieved through marital contributions.

Business Improvements
Special equity interest can also apply to business assets. If one spouse owned a business before marriage and the other spouse contributed labor, expertise, or financial resources that helped grow the business during the marriage, the contributing spouse may have a special equity claim in the business’s increased value. This is separate from any claim that the business itself became marital property through transmutation.

Homemaker Contributions
South Carolina recognizes that homemaker services can give rise to special equity claims. In the landmark case Parrott v. Parrott, the South Carolina Supreme Court established that when one spouse forgoes career opportunities to remain in the home, rear children, and provide a suitable environment for the family over a long marriage, that spouse may acquire a special equity interest in property acquired by the wage-earning spouse. This recognition acknowledges that indirect contributions to the marital partnership have real economic value.

How Special Equity Interest is Calculated
Calculating special equity interest requires careful analysis and often expert testimony. The family court typically follows this general approach:

First, the court must determine the property’s value at the time of marriage (or acquisition if during marriage). This establishes the baseline non-marital value. Next, the court determines the property’s value at the time of filing for divorce. This establishes the current value. The difference between these two values represents the appreciation that occurred during the marriage.

The court then examines the nature and extent of the claiming spouse’s contributions. Expert testimony may be necessary to quantify the value of improvements, maintenance, or management services. Financial records showing expenditures on the property are critical evidence. Finally, the court determines what portion of the appreciation is attributable to the claiming spouse’s contributions versus market forces or the owning spouse’s efforts.

For example, if inherited property worth $200,000 at marriage is now worth $280,000, the appreciation is $80,000. If the non-owning spouse made $30,000 in documented improvements and performed substantial maintenance work, the court might award a special equity interest of $40,000 to $50,000, accounting for both the direct costs and the value of labor contributed.

Proving Special Equity Interest: Evidence and Documentation
Successfully establishing a special equity claim requires thorough documentation and persuasive evidence. Essential documentation includes property valuations showing the property’s value at relevant time periods, receipts and invoices for improvements, repairs, or maintenance performed on the property, and bank statements or canceled checks demonstrating financial contributions. Photographs documenting the property’s condition before and after improvements can be compelling evidence, as can testimony from contractors, appraisers, or other professionals who worked on or evaluated the property.

The testimony of both spouses regarding contributions made is crucial. If claiming indirect contributions through homemaker services, evidence of the duration and extent of those services and how they enabled the other spouse to improve or maintain the property should be presented. Expert witnesses such as real estate appraisers, contractors, or business valuators may be necessary to establish the value of improvements or the amount of appreciation attributable to various factors.

Strategic Considerations in Special Equity Claims
When to Assert a Special Equity Claim
Not every contribution to non-marital property warrants a special equity claim. Courts require that contributions be material and that the resulting appreciation be significant. Minor improvements or routine maintenance may not rise to this level. Strategic considerations include evaluating the cost of proving the claim (expert witnesses, appraisals, legal fees) versus the likely recovery, assessing whether alternative claims (such as alimony or a larger share of marital property) might be more advantageous, and determining whether the property owner might voluntarily acknowledge the contribution in settlement negotiations.

Defending Against Special Equity Claims
If you own non-marital property and face a special equity claim, several defenses may be available. You can demonstrate that property appreciation resulted from market forces rather than the other spouse’s contributions, prove that any improvements were minimal or routine maintenance that did not materially increase value, show that contributions were already compensated through other benefits received during the marriage, or establish that the claiming spouse’s contributions were offset by their use and enjoyment of the property during the marriage.

The Interaction Between Special Equity and Other Family Court Issues
Special Equity and Alimony
The family court considers special equity awards when determining alimony. If one spouse receives a substantial special equity interest in valuable property, this may reduce their need for ongoing alimony support. Conversely, if a special equity claim is denied or results in a modest award, this may support a higher alimony award. The court examines both spouses’ property interests, including special equity, as part of the comprehensive equitable distribution analysis under South Carolina Code Section 20-3-620.

Special Equity and Equitable Distribution Factors
When dividing marital property, the family court considers fifteen statutory factors, including each spouse’s contribution to the acquisition, preservation, or appreciation of marital property. A demonstrated pattern of one spouse improving or maintaining property—even non-marital property—can influence how the court views that spouse’s overall contributions to the marital partnership. This can affect the distribution of marital property even apart from any specific special equity award.

Recent Developments and Important Case Law
South Carolina courts continue to refine the special equity doctrine through case law. The Dawkins v. Dawkins decision clarified that once property is fully transmuted into marital property, no separate special equity interest exists—the property is simply marital and subject to equitable distribution. This overruled earlier cases that had allowed courts to carve out non-marital portions of transmuted property.

In Jordan v. Postell, the Court of Appeals addressed special equity in detail, affirming that a spouse could receive special equity interest based on both improvements made to non-marital property and contributions to mortgage reduction during the marriage. The court emphasized examining the actual contributions made and their impact on the property’s value.

These cases underscore the importance of carefully characterizing property as either non-marital, marital, or transmuted, as this characterization fundamentally affects what remedies are available. They also highlight that special equity claims require specific proof of contributions and appreciation, not merely general assertions of support during the marriage.

Protecting Your Interests: Practical Steps
Whether you believe you have a special equity claim or you own non-marital property that might be subject to such a claim, several practical steps can protect your interests:

Document everything related to property improvements, maintenance, and management. Keep receipts, invoices, photographs, and records of time spent on property-related activities. If you own non-marital property, maintain clear records showing its non-marital character and avoid commingling it with marital assets. If you make improvements to your non-marital property, document whether marital funds or labor were used. Consider obtaining property appraisals at key points, such as at the time of marriage, after major improvements, or if divorce becomes likely. These establish baseline values for later comparison.

If you anticipate a special equity claim, consult with an experienced family law attorney early in the process. Special equity cases often require expert testimony and careful presentation of evidence, which takes time to prepare. Early consultation allows your attorney to advise you on evidence gathering and to evaluate the strength of potential claims or defenses.

Conclusion
Special equity interest is a powerful but complex doctrine in South Carolina family law. It recognizes that contributions to a spouse’s non-marital property during marriage can create equitable rights, even when legal title remains unchanged. Understanding when special equity applies, how it differs from related concepts like transmutation and commingling, and what evidence is necessary to prove or defend against such claims is essential for anyone facing property division in a divorce.

The doctrine reflects South Carolina’s recognition of marriage as an economic partnership where both spouses’ contributions—whether financial, physical, or in the form of homemaker services—have value and should be fairly considered when the marriage ends. Whether you believe you have made significant contributions to your spouse’s property or you own non-marital property that may be subject to a special equity claim, experienced legal counsel is essential to protecting your rights and achieving a fair outcome.

If you are facing divorce and have questions about special equity interest, property division, or any other family law matter, the experienced family law attorneys at Klok Law Firm LLC are here to help. We provide knowledgeable, strategic representation in family court matters throughout South Carolina. Contact us today to schedule a consultation and learn how we can protect your interests.

By Suzanne Klok|2025-11-12T15:56:31+00:00March 14th, 2024|Family Law, special equity|Comments Off on Special Equity Interest in SC Divorce

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About the Author: Suzanne Klok

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Special Equity Interest in SC Divorce

Special Equity Interest in SC Divorce