Division of Business Assets During a Divorce

Over 90 percent of people are married by age 50 in westernized cultures, according to the American Psychological Association (APA). By that time, going through a divorce can easily become complicated because there are often comingled assets and liabilities, and these can sometimes include a business. Virginia is what's known as an equitable distribution state—which means each party gets what the judge determines as fair, not what is a 50/50 split. Consequently, a business could be subject to division during the divorce process.

Understanding Equitable Distribution in Virginia Divorces

When dividing assets, the court will first determine what is marital property—that is, what was acquired with shared funds or that which both spouses maintained by monetary or non-monetary means. Identifying marital property allows courts to place value on divisible assets and liabilities, keeping individual property separate.

Separate property, or property belonging solely to one spouse and never combined with marital assets, is ineligible for division by the courts.

How to Handle the Division of a Business

The two divorcing parties can first attempt to divide property without the court’s involvement. Both spouses submit a proposal through their respective attorneys, makes changes as needed, and continue with distribution. If no agreement can be reached, the court steps in.

However, divorcing couples have a few options when it comes to dividing a business on their own:

  • Sell and split the profit. To make sure both spouses get a fair share of the business, they could find a buyer and split the profits 50/50. Possibly, the two might agree on a 60/40 or other appropriate split. Complications may arise if the business isn’t profitable or desirable as an investment, making it difficult to find a buyer.
  • Buyout. If one spouse wants to keep a business, she can buy out the other. Either through a lump sum or structured payments over time, one spouse can compensate the other for his contributions to the business while still maintaining ownership.
  • Co-ownership. In some cases, divorcing couples are able to preserve their business relationship and keep running the business together. Additionally, one spouse could agree to run the business and pay the other his share of the profits on a monthly or quarterly basis.
  • Court. If all else fails, the courts will value the business, look at its history and appreciation, research each spouse’s part in the business’s success, and divide it through equitable distribution.

Factors to Consider When Dividing Your Business

Virginia courts must consider many factors when considering how to divide a piece of property. When judges makes decisions about how to distribute a business’s revenue, debts, interests, and stocks, he may consider the following questions:

  • When was the business started? A business is marital property if it was started during the course of a marriage. It is also marital property if it was started before the marriage began but was then developed and invested in by both spouses.
  • Who started the business? Even if both names are listed as owners, some consideration goes toward who founded the business as a way to acknowledge the role of the founder and its non-monetary personal or intellectual value.
  • How much is the business worth? Perhaps one spouse started a business before the marriage, but both spouses were an integral part of the business’s appreciation during the course of the marriage. Both spouses ae entitled to compensation for their part in the value.
  • How did each spouse contribute? A significant part of dividing business assets is determining how each spouse worked toward the success of the business. Both monetary investments and non-monetary contributions are considered.

Call Our Experienced Divorce Attorneys for Help With Property Division

Dividing a business, its assets, and its liabilities involves making many complex legal decisions, so it’s helpful to hire an experienced lawyer. At Kearney, Freeman, Fogarty, & Joshi, we are happy to answer your questions and help you through the asset distribution process. Call us at 877-652-1553 to get started on your case.