3 important considerations for divorcing business owners

The property distribution portion of a divorce is often the most contentious. This is particularly true for high-net-worth individuals with complex assets, such as real estate investments. The family home is often an important part of this portion of the financial portfolio, but it may also include vacation and investment properties. Any couple with real estate investments is wise to ask the following before finalizing their divorce. #1: Is the property marital or separate? The first step is to determine the status of the property. Family law matters like divorce are guided by state law, so the location of the divorce matters. If the divorce is in Virginia, the law treats real estate acquired during the marriage as marital property, subject to equitable distribution. This means the courts generally consider any real estate bought during the marriage with marital funds, regardless of whose name is on the title, a joint asset. The courts may deem gifted or inherited property as separate property if it was not commingled with marital assets. #2: What is the value of the property? Establishing a fair market value for real estate is important to better ensure an equitable distribution. This often requires professional appraisals. There are many different valuation options, and in some cases, it is helpful to get more than one estimation before proceeding. #3: What is the cost to maintain the property? Keeping any form of real estate is about more than the initial cost. It is important to also take regular maintenance costs into account. This can include upkeep like lawn care and cleaning, as well as the potential need to replace appliances or structural components like the roof. Also, keep any homeowner’s association fees and taxes in mind when putting together an estimate of the cost to keep the property. #4: What is the cost to sell the property in the future? There are additional expenses for those who choose to keep property only to sell it in the future. Capital gains, for example, may apply. #5: How can I protect these assets? Protecting your real estate investments prior to or during a divorce requires strategic planning. Those discussing a divorce or believing a divorce could be in their future could consider a postnuptial agreement. Similar to prenuptial agreements, these agreements can outline how to handle real estate assets in the event of a divorce. Another option is the use of buy-out agreements. These involve one spouse buying out the other’s interest in the property, giving one party full ownership of the asset. These five questions provide a starting point for determining how to best manage real estate investments during a divorce. It is important to carefully review the details of your situation and discuss the benefits and risks of each option. This will help mitigate the risk of surprises after the divorce is finalized.

A business owned by a married individual may be a family’s main source of income. It is also a valuable asset in addition to being a source of revenue. As an asset, it is potentially vulnerable to division when the owner divorces. Some business owners and professionals who run their own professional practices assume that they can claim their businesses as separate property because they hold them solely in their own names. However, there are many scenarios in which businesses may actually be vulnerable to division even though they may initially seem like separate property. What constitutes separate property? People generally do not have to divide assets that they owned before marriage or acquired after officially separating from their spouse. They can also preserve any gifts or inherited property as their own resources in a divorce. Many times, businesses might represent an investment a professional made before getting married. Other times, they may have inherited the business from a loved one or received their ownership interest as a gift when a family member retired. While the owner may hope to protect the business as separate property, doing so can be a challenge. Those who have marital agreements, including prenuptial and postnuptial agreements, have the easiest time preserving businesses as separate property if they addressed the business in the initial contract. Otherwise, people have to establish when they assumed ownership of the business. They also have to prove that no commingling occurred. Doing so can be prohibitively difficult, as it is quite common to use income earned during the marriage to maintain or improve the company. People also frequently rely on their spouses to provide unpaid labor to help run the business. Whether a spouse cleaned toilets or issued paychecks using accounting software, their labor could give them an interest in the business. Any commingling that occurs during a marriage makes at least a portion of the value of the business vulnerable during divorce proceedings. Those who hope to retain sole ownership of their businesses may need help reviewing financial records and negotiating with their spouses. With the right approach, it may be possible to protect the company or at least limit the loss of equity during divorce negotiations. Setting realistic property division goals is crucial for those preparing for complex divorce proceedings. Divorcing business owners often prioritize preserving a company that they rely on for income above other assets that they may have to divide during divorce.

Certain aspects of divorce tend to make people very anxious about the idea of ending a marriage. For example, many people worry about the financial implications of divorce because they have heard a story wherein someone lost their home or other valuable assets in what seems to be a very unfair property division decree. It is important to remember that many people exaggerate or overtly misrepresent details of their divorce out of embarrassment or a desire to make their former spouse look like a villain. Those who are familiar with Virginia’s property division rules will probably feel more confident about filing divorce paperwork or responding to a spouse’s filing, as these rules strive for fairness. Virginia has an equitable distribution rule There is never any certainty regarding how the courts might divide personal property in a divorce, as a judge must interpret the circumstances to decide what is appropriate. The law in Virginia requires an equitable division of marital property, which means a fair solution. Spouses will need to disclose their financial circumstances to one another and the courts. A judge will then apply state law to the marital estate of those divorcing via a litigated process. A judge must help couples split up the income they earned while married and also the property they purchased during that time in a fair manner. What is fair for one couple would be wildly inappropriate for the next. Therefore, judges need to look at factors including current income levels, separate property, health concerns and even custody arrangements when deciding how to divide marital property in an equitable manner. Debts can play as big of a role as major assets. Judges can order either spouse to take on some of the marital debt to balance the division of property. They can also order the sale of assets to pay off marital debts in some cases. Although there is never a guarantee about how exactly the courts will divide property, people can expect solutions that prioritize fairness for both spouses. Learning more about the rules that apply during divorce proceedings could help people develop more realistic expectations and more effective legal strategies. Many people opt, for example, to pursue uncontested divorce proceedings so that they can control the outcome of their property division situation.