by James Korman, Shareholder, Bean, Kinney & Korman, P.C.
following article is NOT legal advice. Do not act on it without
consulting a qualified attorney. Every case is different.
think your job is stressful? Wait till you find out what impact a divorce can
have on your business and on your income, not to mention your life.
divorce can be more or less amicable. Having an idea about what is involved can
choice: take every reasonable step to
keep your marriage together. But some marriages cannot be saved, and you have
to go to Plan B. A qualified divorce lawyer can tell you what your options are,
what is realistic, and how you can put together your Plan B.
Plan B For the
Virginia Business Owner or Professional
you or your spouse lives in Virginia, your divorce will likely be governed by
Virginia law, assuming one or both of you is a legal resident and physically domiciled here.
general, there are four issues to be resolved. They are:
divorce itself, and the grounds of divorce.
of minor children.
of child and spousal support.
of marital property.
am going to start with the fourth, because it is the category that can most
affect your business.
is an “equitable distribution” state. In equitable distribution, marital
property is divided equitably, meaning fairly. The Virginia Court of Appeals
has stated that “equitably does not mean equally.”
says the Code of Virginia, only marital property is subject to division in a
divorce. So it has to be determined what is marital and what is separate.
Property you or your spouse owned before you married is separate. Property you
or your spouse inherits, or that either receives as a gift, is separate. But,
of course there are exceptions. Gifts between spouses are marital. And this is
important: for any separate property to remain separate, you should try to
avoid co-mingling it with marital property. There can also be “hybrid” property
that is part marital and part separate.
Marital Property. Property
acquired during the marriage is presumed to be marital. If you want to claim
that property acquired during the marriage is all or part separate, it is your
burden to prove it.
does “during the marriage” mean? Your marriage obviously begins on the day you
get legally married. In Virginia, the end date for the purposes of these
financial issues is the date of “final separation.” That means the date one
party moves out with no intention of returning.
now that we know that property acquired during the marriage is presumed to be
marital, what property does that include? The answer can be scary – pretty much
an asset is titled in your name, your spouse’s name or in joint names, it is
still presumed to be marital. That will include bank and brokerage accounts,
securities, real estate, vehicles, IRA’s, 401K’s, pensions and your business,
whether it is a corporation, partnership, LLC or sole proprietorship. If it had
its inception during the marriage, or if its value was enhanced during the
marriage, it will likely be in large part marital property. And all marital
property, if you recall, is subject to division between the spouses in the
event of divorce. I bet that got your attention.
court will determine the value of all marital assets, and then equitably divide
those assets. Some can be divided in kind. You have 100 shares of Enron, the
judge can give half of the shares (or some other percentage the judge deems as
fair) to each party. Some jointly titled assets, like the marital home, or any
other real estate, cannot be readily divided, so the court can order it sold
and the proceeds divided.
court will consider and value all marital property, but the court can only
order the division, or sale and division, of property that is jointly titled. If
your ownership interest in your business is in your name alone, the court will place
a value on your interest in the business and award your spouse part of that
value. You will have to either transfer to your spouse that percentage of your
ownership interest, or give him/her something else of equal value:. whatever
your spouse agrees to accept or the court approves.
predicate to all of this is a valuation of an often closely held business. That
can be complicated, particularly with a service business where the value is far
more than what you could get for some used desks and computers. And it can be
more than your share of the capital account. It often requires the hiring of an
experienced forensic accountant to do the valuation. Under Virginia law, the “intrinsic
value” of the business is what will be considered. With many businesses, the
intrinsic value is the ability to generate profits and income, now and in the
future. The evaluation will offer an opinion about the value of your interest
in the business. Relying on the evidence the court thinks is most credible, the
judge will determine the value, and divide it “equitably.”
have been referencing throughout what the court would do, or what a judge would
do. That does not mean you have to submit to that modern version of medieval
combat – the court trial. The vast majority of cases will settle. You can
negotiate, you can mediate, you can collaborate, you can even arbitrate. If
none of that succeeds, you may have to litigate.
difference in each of these alternatives has to be the subject of another
The conclusion. If you do get
a divorce, your income and all of your assets, including your business, are at
risk. You had better see a lawyer early if you think a marital split could be
in your future.