divorce

Work Toward a Fair Agreement on the Family Business With the Help of a Chesapeake Family Law Attorney

Family businesses often represent years of hard work, shared dreams, and financial investment. But what happens when a marriage dissolves in Virginia? The combination of divorce law and private business ownership creates a unique set of challenges for separating couples. 

The division of business assets, whether it’s a bed-and-breakfast inn or a family restaurant, can be a contentious issue in Virginia divorce courts. Consult with Chesapeake family law attorney James E. Short to better understand how you can protect your business interests through divorce proceedings. 

How Virginia Divorce Courts View Family Businesses

In general, divorce courts in Virginia typically view family businesses as marital property subject to equitable distribution. In this way, the family-owned company is treated the same way as the family home or investment portfolio. 

Courts consider various factors when aiming for a fair division of marital property. A fair division doesn’t necessarily mean an equal split, however, as a business may have predated the marriage and be treated as separate property. The increased value during the marriage, however, could be subject to division. Arguments regarding contribution to the business can be equally contentious and nuanced. 

How Family Businesses Are Handled After a Divorce

There are typically three main options for what happens to a family business in a Virginia divorce.

  • Equal ownership. After the divorce, the ex-spouses continue to co-own and potentially co-operate with the business. This is typically the least desirable outcome, as the relationship could become increasingly less amicable over time. 
  • Buying out a spouse’s share. One spouse purchases the other’s full interest in the business and operates it independently. The buyout can involve a structured payment plan or be offset by how other marital assets are split.
  • Selling the business. The couple may agree to liquidate the business and divide the proceeds of the sale as part of the overall divorce settlement. This division is not necessarily 50/50. 

Factors That May Impact How the Family Business Is Distributed in a Divorce

Determining the fate of the family business in a Virginia divorce involves evaluating factors that may influence the court’s decision. These elements play into how the business is ultimately distributed between divorcing spouses. 

Contested vs. Uncontested Divorce

Whether your divorce is contested or uncontested can impact what happens to the family business. In an uncontested divorce, the spouses may agree to an amicable division of business assets, potentially leading to a smoother transition that benefits both parties. A contested divorce can be much more challenging, sometimes requiring court arbitration. The outcome may not align with the best interest of either spouse or the business. 

Business Ownership and Contribution

The timing of the business’s establishment can be a key factor. If the business was founded before marriage, it may be considered separate property. If it was started during marriage, it’s typically viewed as a marital asset. 

Even so, pre-marital businesses can become partially marital if they grow significantly during the marriage. This growth is subject to equitable distribution. Spousal contributions, both direct and indirect, also factor into the court’s decision. The court will divide debt equitably as well. 

First or Second Divorce

The distribution of a family business in Virginia can also be affected by whether yours is a first or second divorce. A first divorce may focus on dividing marital assets based on Virginia’s equitable distribution laws. With a second divorce, the courts must also consider preexisting obligations from the first divorce that affect the financial landscape, like child support payments. 

The Business’s Fair Market Value

Virginia divorce courts often rely on business valuations conducted by a certified valuation analyst (CVA) or certified public accountant (CPA) to determine the fair market value of the family businesses. They may arrive at a figure based on income or excess earnings, asset valuation, or the selling price of comparable businesses in the area. The valuation process may also account for potential future earnings and intangible assets like customer relationships. Divorce agreements then weigh the business’s value against other marital assets for equitable distribution. 

The Existence of Relevant Agreements

Legal agreements may already be in place to establish what happens to the family business in a divorce.

  • Prenuptial agreements may supersede standard equitable distribution laws. Section 20-150 (3) of the Virginia Premarital Agreement Act defines the “disposition of property upon separation, marital dissolution, death, or the occurrence or nonoccurrence of any other event.” 
  • Shareholder agreements, defined by the Virginia Stock Corporation Act, often clearly define a business's roles and responsibilities. They can also outline buyout procedures or restrictions on transferring ownership. 
  • Buy-sell agreements (BSAs) are lifetime contracts that may outline specific terms for the valuation and transfer of business interests in the event of divorce. It may require one spouse to buy out the other spouse’s interest in the business at an agreed-upon price. 

Why You Need a Virginia Divorce Lawyer in Your Corner

The dissolution of marriage in Virginia can lead to bitter feelings and resurfaced resentment. The picture is further complicated when a treasured family business is involved. When dividing retirement savings and other marital assets, protect your fair stake with an experienced Virginia divorce attorney who can handle your case with skill and compassion.

“When faced with the heartbreaking decision to file for divorce, I had no idea what steps to take or who to turn to,” writes past client Robert O. “Mr. Short spoke to me directly, listened intently to my story, and asked important questions. His compassion and concern were immediately felt, so I chose him as my attorney. Over the next eighteen months, Mr. Short became a trusted voice that helped me through some difficult times.”