Kelly Byrnes & Danker, PLLC

Virginia Family Law Blog

Things to consider when dividing a business in divorce

When couples in Virginia who are getting a divorce own a business, they will have to decide whether they want to keep it or sell it. Some couples decide that they will keep running the business. However, this is unusual since most estranged couples are not able to set aside their differences enough to work together effectively.

A more common solution is for one to leave the business and be bought out by the other. The value of the business will need to be determined through an appraisal. Once this is done, if one spouse has the liquid assets to buy out the other spouse directly, this will not be considered a taxable event since it is related to the divorce. Spouses who do not have this liquidity can pay off the other spouse over a longer period of time with a promissory note. Another option is for the company itself to buy out the spouse who is departing.

Divorce, taxes and dependents

Divorced or separated parents in Virginia may claim their children as dependents when filing taxes. However, they should be aware that if more than one taxpayer claims a kid as a dependent, the Internal Revenue Service will have to take a second look at the returns.

Including dependents on a return can have a significant impact on taxes. Taxpayers with qualified dependents can file as the head of their household, which is deemed a favorable tax filing. The taxpayers can also claim tax credits such as the Earned Income Tax Credit, the Child and Dependent Care Tax Credit and the Child Tax Credit.

What are the benefits of a prenuptial agreement?

Some people view prenuptial agreements as planning for a marriage to fail. That is not true. A prenuptial agreement gives you and your partner the opportunity to plan for the future. While it may not sound particularly romantic, it can help get your marriage off on the right foot.

There are many reasons why you may be considering a prenup. Here are a few benefits of signing a prenuptial agreement.

Divorce and what may happen to a business

Virginia business owners who are getting married might wonder how they can ensure that the company does not become a point of contention if there is a divorce. With a prenuptial agreement, the couple can establish that the business is separate property, and it will not be part of the process of property division in a divorce.

If both spouses are co-owners, they may also want to make a plan. This could be continuing to own the business despite the divorce, or it could mean one person agreeing to sell the company to the other in the event of divorce. A prenup might also name a certain percentage of the business that a spouse will get if there is a divorce. If a couple is already married, these provisions could be stated in a postnuptial agreement.

Divorce stress can impact performance of executives and owners

Business owners and members of upper management in Virginia often have a lot at stake when they negotiate their divorces. Decisions about the division of real estate, retirement accounts and business assets often involve tension or outright disputes. The possibility of paying child or spousal support could add to their concerns. The stress could spill over into workplace performance, or the divorce could alter the ownership of a company.

People who hold stock in their companies might succeed in retaining a controlling interest by offer former spouses other marital assets. The distraction of negotiating the transfer of valuable assets, however, could alter the workplace performance of CEOs and owners. A researcher from Stanford's Graduate School of Business found that people in this situation might struggle to concentrate at work. Their productivity might plunge. If stock is lost during a divorce, influence over business decisions and strategy could erode.

Planning a parenting schedule that puts children first

After divorce, a Virginia couple may need to create a parenting plan for custody and visitation. Parents should think about this schedule from the child's point of view. This means considering the child's schedule as well as where they both live and the location of the child's school. The aim should not be the parents' convenience but to make things easy for the child.

Some parents may be tempted to use the schedule to get back at an ex. However, the plan should be designed to keep both households involved with the child. Parents may also need to accept that they have different parenting styles. In most cases, a child won't be harmed by this difference. Some parents may have plans for the future, such as relocating in a few years to be closer to a child's school. However, the parenting schedule should focus only on the present since these types of plans can change. If necessary, the parents can give the schedule a test run for a few weeks and make changes.

Deciding to not divorce for financial reasons

About half of all first marriages end in divorce, and the odds only get worse the more times someone gets married. For divorcing couples in Virginia, financial times can often get rough after separation. That's why it's a good idea for each party to carefully consider the financial implications of divorce before proceeding with the legal process. Sometimes, couples counseling and therapy can resolve issues and help maintain a relationship.

The primary cost to think about when deciding to get a divorce is the cost of living. Maintaining two homes separately is almost always going to cost more than staying together. Even if one person stays in a house the couple bought while married, they will likely have to do so with less income. Selling the home also comes with expenses and hassles of its own, especially if the market isn't good.

Can I deduct my alimony payments on my taxes?

Though the state of Virginia does not require alimony or spousal support as part of your divorce settlement, a judge may order you to pay support to your ex. If you are in the middle of your divorce proceedings, you may not mind agreeing to payments to speed up your divorce process. Or, you may concede to continued support for your spouse’s contributions to your marriage.

However, the implications of supporting your former spouse may weigh heavily on your budget, and the new tax law may only increase your concerns about how court-ordered alimony payments will affect you.

Why joint custody is beneficial for children

Virginia fathers who are going through the divorce process are often concerned about how the separation will impact their children. Many dads in this situation are faced with the dilemma of giving up sole custody to the mother. Part of the reason why this question often arises is because experts have in times past warned against children, especially young children, spending time at night away from their mothers.

However, newer research shows the many benefits that children experience when divorced parents share 50-50 joint physical custody. This is true even for younger toddlers and infants. The only exception would be when a parent is neglectful or abuses the child.

Disputes about money raise red flags for divorce

Financial pressures can undermine marital relationships. Couples in Virginia who fight frequently about spending and debt face a 30 percent higher chance of getting divorced, according to a recent study. Money challenges might confront new spouses right away or arise years later after reckless spending by one or both partners.

A survey by Utah State University that asked couples about their finances and relationships determined that over half of marriages start with debt. Furthermore, 40 percent of indebted couples admitted that money issues caused difficulty within their relationships. Sometimes, spouses played the blame game. Survey results showed that 49 percent of spouses contradicted each other about who was responsible for the debt.

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Kelly Byrnes & Danker, PLLC

Kelly Byrnes & Danker, PLLC

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