How does divorce impact my business or business assets in Virginia?
Answered by: Julie Hottle DayCulin, Sharp, Autry & Day, P.L.C. Phone: 703-934-2940
Businesses and professional practices, including their assets, may be considered part of the marital estate in Virginia whether or not they are owned in the name of either party. An ownership interest in a business acquired during the marriage in only one party's name, or in the name of a business entity, may still be part of the marital estate. As such, it is subject to identification, valuation, and distribution by the court in a divorce proceeding. An ownership interest acquired prior to the marriage may also be included as an asset of the marital estate in certain circumstances.
Virginia courts tasked with dividing the marital estate as part of a divorce are required to identify all property of any nature owned by the parties. The court then determines the legal title and ownership of each item, and whether the property is marital, separate, or part-marital/part-separate. Regardless of how the property is titled, if it was acquired during the marriage or substantial personal effort of either party during the marriage contributed to its value, the court will presume that the property is marital unless proven to be the separate property of either party. If the business interest is not owned in the name of both parties, upon establishing that it is part of the marital estate the court may assign a value to the asset and make a monetary award to the non-owning spouse in order to compensate him or her for the marital interest in the asset.
In effecting the distribution between spouses of business or professional practice assets, Virginia courts seek to determine the intrinsic value of the business or professional practice asset to the owning party. The most common means of providing this information to the court is to retain the services of a professional business appraiser with experience in valuation of similar types of businesses. The appraiser can prepare reports for review by the parties, provide information via deposition, cooperate with mediation efforts of the parties, and be retained to serve as an expert witness at the final equitable distribution hearing, if necessary, to provide the court with proof of the value of the business or professional practice. Divorce counsel can help client business owners understand what their obligations will be during the conduct of the business valuation.
If the business is owned in the names of both parties, distribution of the business in the divorce may not be possible by the court, so the best resolution is to negotiate or mediate a buyout of one party or enter into a new contract (by laws, operating agreement, employment agreement, etc.) dictating the manner in which the business will be managed by the parties after the divorce. In the case of joint business ownership, the assistance of a business appraiser is still useful in such areas as determining an appropriate buyout amount or, if the parties will continue to own the business, determining whether it is appropriate to document the value of the business as received by each party as part of the divorce process in order to lay an appropriate foundation for future capital account and tax considerations.
A marital estate with complex assets, including business and professional practice interests, requires the services of a family law attorney experienced in business and who mediates or litigates such cases on a regular basis.
The answer is intended to be for informational purposes only. It should not be relied on as legal advice, nor construed as a form of attorney-client relationship.
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