Division Of Assets And Debts FAQS
What is the name given to the process by which a Virginia court divides the assets of a married couple?
Are accounts or assets that are solely titled in one spouse’s name subject to Equitable Distribution?
Answer: Yes. Generally speaking, the critical aspects regarding property involves not title but rather the source of funds used, and the time property is acquired.
Answer: “A system of law by which the court resolves a couple’s interests in their property upon divorce. Upon request of either the husband or the wife, the court ascertains legal title, and the ownership and value of all property, real or personal, tangible or intangible, of the parties, and determines which property is separate, marital, or hybrid. Code of Virginia Section 20-107.3 A.”
(The term “equitable distribution” is actually something of a misnomer: under the terms of the statute the only property that can literally be divided or “distributed” is property in the parties’ joint names. The parties’ legal interests in property that is not jointly titled, but is defined as marital under the rules described below, are resolved through the mechanism of a monetary award, i.e., a money judgment payable by one party to the other.
Answer: Examples include:
- Property acquired before marriage
- Property acquired after the parties’ final separation.
- Property acquired during marriage by gift or inheritance from a source other than spouse
- Property acquired during marriage in exchange for, or from proceeds of, separate property, provided such
- Property is maintained during the marriage as separate property.
- Passive income or growth of separate property.
Answer: Anything that is not separate property.
- Property titled in the names of both parties, unless it was not a gift and is traceable to separate property.
- Property acquired during the marriage prior to separation.
- Increase in the value of separate property if the increase is material and is due to significant marital efforts.
Answer: Property that started as separate property but was commingled during the marriage with marital property or “transmuted” in part to marital property (e.g. a business interest acquired before the marriage that significantly increases in value due to substantial marital efforts).
Property that started as marital property but was commingled with separate property (e.g. a 401k created during the marriage to which a spouse contributed funds post-separation)
Answer: No, once classified as separate, the separate property is 100% that of the owner.
Answer: Yes, in part. That property classified as marital within hybrid property is divisible; however, that property classified as separate within hybrid property is indivisible.
Answer: Under Virginia’s system of equitable distribution, set forth in Virginia Code Section 20-107.3, the following factors are considered when determining how to apportion marital property:
- The contributions, monetary and nonmonetary, of each party to the well being of the family;
- The contributions, monetary and nonmonetary, of each party in the acquisition and care and maintenance of such marital property of the parties;
- The duration of the marriage;
- The ages and physical and mental condition of the parties;
- The circumstances and factors which contributed to the dissolution of the marriage, specifically including any ground for divorce under the provisions of subdivisions (1), (3) or (6) of § 20-91 or § 20-95;
- How and when specific items of such marital property were acquired;
- The debts and liabilities of each spouse, the basis for such debts and liabilities, and the property which may serve as security for such debts and liabilities;
- The liquid or nonliquid character of all marital property;
- The tax consequences to each party;
- The use or expenditure of marital property by either of the parties for a nonmarital separate purpose or the dissipation of such funds, when such was done in anticipation of divorce or separation or after the last separation of the parties; and
- Such other factors as the court deems necessary or appropriate to consider in order to arrive at a fair and equitable monetary award.
The court must consider all of these factors when making an equitable distribution award; however, it does not need to discuss how it considered each one in its opinion, and in its discretion, the court can give more or less weight to any specific factor. See Barker v. Barker, 27 Va. App. 519 (1998).
If a spouse comes into the marriage with interest in a business entity, does that business interest remain separate property or can it become marital? Does the fact that the separate business interest benefitted the family affect the outcome?
Answer: Interest in a business entity acquired before the marriage starts as separate property; however, the asset may be transmuted into hybrid property if the asset is commingled with marital property or if the other spouse made significant personal efforts and/or monetary contributions to the business prior to separation, which efforts substantially improved the value of the business.
Answer: There is no presumption that marital assets must be split evenly between the parties. Matthews v. Matthews, 26 Va. App. 638 (1998). In fact, where one spouse’s business is considered a marital asset, the non-owning spouse typically receives less than 50% of that business interest upon divorce. One factor in a number of situations is the illiquidity of the business interest. The exact percentage of the division of a business interest depends completely upon the trial court’s discretion and how it considers the enumerated factors in VA Code § 20-107.3(e).
What is the standard of value/method of valuation employed by the court in ascertaining the value of a spouse’s business interest?
Answer: Historically, Virginia courts have used numerous and inconsistent methods to value business interests. Such terms as value, fair value, fair market value and the like have been used. The Court of Appeals, in Bosserman v. Bosserman, 9 Va. App. 1, 384 S.E.2d 104 (1989) which involved an ownership interest in a real estate holding company, set forth a definitive standard of value – intrinsic worth – stating, “Trial courts valuing marital property for the purpose of making a monetary award must determine from the evidence that value which represents the property’s intrinsic worth to the parties upon dissolution of the marriage.” In Bosserman, the Court of Appeals, in approving the business valuation of the spouse’s expert, affirmed the trial court’s rejection of the value of the stock set forth in corporate bylaws.
In Howell v. Howell, the trial court was confronted with a similar situation. George Howell was a partner at Hunton & Williams. The partnership agreement defined the value of the partnership interest upon termination or death. At termination or death, the agreement entitled the partner to receive only the balance of his capital account and his share of the net income. When the trial court found that Mr. Howell’s business or organization goodwill at Hunton & Williams was valuable and constituted marital property, Mr. Howell appealed, contending that his Wife was thereby receiving more than he, himself, was entitled to under the partnership agreement. The Court of Appeals affirmed the trial court. It cited Bosserman and reaffirmed that intrinsic value is the standard of value in divorce cases. Howell defined intrinsic value: “Intrinsic value is a very subjective concept that looks to the worth of the property to the parties. The methods of valuation must take into account the parties themselves and the different situations in which they exist. The item may have no established market value, and neither party may contemplate selling the item; indeed, sale may be restricted or forbidden. Commonly, one party will continue to enjoy the benefits of the property while the other must relinquish all future benefits. Still, its intrinsic value must be translated into a monetary amount. The parties must rely on accepted methods of valuation, but the particular method of valuing and the precise application of that method to the singular facts of the case must vary with the myriad situations that exist among married couples.”
In Howell, the Court noted that shareholder or partnership agreements should be considered by the Court (and impliedly by the valuators), but not treated as conclusive. In general, then, intrinsic value is the going-concern value in the hands of the owner.
Answer: The date of the hearing. Virginia Code Section 20-107.3 provides:
“The court shall determine the value of any such property as of the date of the evidentiary hearing on the evaluation issue. Upon motion of either party made no less than 21 days before the evidentiary hearing the court may, for good cause shown, in order to attain the ends of justice, order that a different valuation date be used.”
Answer: The date of the hearing. Virginia Code Section 20-107.3 provides:
Answer: Yes. Under Va. Code § 20-107.3(A), instead of using the standard evidentiary hearing date as the valuation date of marital property, the court may, “on good cause shown,” order that an alternate valuation date be used. Where one party moves the court to use an alternate valuation date, that party bears the burden of proving “good cause.” Kaufman v. Kaufman, 7 Va. App. 488, 499-500 (1988).
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