How will a court equitably divide marital assets when two parties have comingled their personal and business finances?
In Reynolds v. Reynolds, CH05-140 (2005), the City of Salem Circuit Court held that the husband had to pay the wife a monetary award for the inequities he had created between their assets and that the parties could decide to buy each other out on the two marital properties or sell them and divide the proceeds.
The parties were married in 1988, and following their marriage, they purchased a carpet cleaning franchise and started their own business. The husband’s role in the business included cleaning carpets, training employees, repairing equipment, soliciting business, and supervising employees on the job. The wife managed that business’s marketing, bills, and other administrative matters. Furthermore, after the parties had children, the wife also managed the house and the children. Both parties worked full time at the business; however, the parties did not separate the finances of their personal lives from the business finances. When money came in, they used it for either personal or business expenses. Both parties took cash as needed, without telling the other how much they took. They used credit cards to interchangeably buy both household goods and business supplies. Together, the parties also invested in their business, marital residence, lakefront property, rental property, a boat, and securities and retirement accounts.
After the separation, the wife continued working at the business for twenty-one months until the Court removed the wife from the business operation so it could remain a viable marital asset. At that time, the Court ordered the husband to pay child and spousal support to cover the needs that the wife had previously provided from the joint funds. The wife and the children continued to live in the marital home, and around that time, she attended and subsequently graduated college with a business degree in marketing. The husband during this period purchased a wood floor refurbishing franchise and spent a great deal of time building this business at the expense of the carpet cleaning business. Moreover, he used money from the other business to purchase the wood floor business and pay its operating costs. Although he tried to keep this operation a secret, his actions caused the carpet cleaning business to become less successful, and he simply kept the profits from the floor business without accounting for them to the wife.
To make an equitable distribution in this case, the Court weighed the parties’ testimony, the witnesses, the oral and written arguments of the parties, and the exhibits presented in evidence. Moreover, the Court applied Virginia Code §20-107.3 and the factors specifically laid out in §20-107.3(E), as well as examining the equities involved. The Court then detailed specifics for equitable distribution of each of the following disputed categories: the marital real property, the marital carpet cleaning business, marital vehicles, investment and retirement accounts, miscellaneous property, marital debt and attorney fees.
The Court determined that all of the parties’ real estate constituted marital assets; only the husband’s purchase of a residence after the separation differed—the Court considered this property as a hybrid, because he made the $14,000 down payment with marital funds. The other two properties were the marital residence valued at $270,000.00 and the lakefront property valued at $489,000.00,which the Court determined should be divided equally between the parties, with both assuming one-half of any remaining debts on the properties. Moreover, the Court noted that the wife could buy out her husband’s interest in the marital home. Because she wanted to continuing to live in the marital home, the Court determined that she could buy the husband’s interest by paying one-half of the difference between its appraised value and the current payoff of its note. Likewise, if the husband wanted to keep the lakefront property, he could perform the same valuation and pay off the wife’s interest. If he chose not to do so, the property would be sold, and the result would be equitably divided between the parties.
In regards to the marital carpet cleaning business, the Court accepted the husband’s expert valuation of the business, placing its worth at $185,000.00. Although the Court permitted the husband to purchase his wife’s share for $92,500.00 within 90 days, it held that a failure to buy out the wife’s half would force the parties to sell the business and split the proceeds equally. In addition, the Court examined the evidence on the parties’ marital vehicles and determined that the husband had a separate vehicle purchase after the separation. The other vehicles, however, included a 2001 Tahoe, a 2001 Stingray 22 foot boat, and a boat trailer. Due the difficulty in separating these assets, the Court determined that the parties would simply keep the vehicles in their possession and the total value of the marital assets would be divided equally.
After hearing evidence on the accounts, miscellaneous property, and marital debts, the Court determined that each party would keep his or her own IRA account and a joint share of the joint account. Moreover, the stimulus money received by the husband was to be divided equally, because the husband provided the sole support for the children. Finally, the Court held that all debts acquired during the marriage were to be considered joint and should be divided equally. Therefore, the Court gave the parties discretion whether to buy out the other’s share in the marital real estate or business and later report for a final division of the assets.
You should consult with your Virginia divorce lawyer regarding the equitable distribution of your personal and business property.