Equitable Distribution in Virginia
How to financially protect yourself when divorcing in Virginia
|Written by Tom Yeung, CFA | CDFA|
Investment Advisor & Fund Manager, Jurnex Financial Advisors
You want to initiate a divorce, but you’re worried about finances.
I get it. According to AARP, financial issues are the number one reason people delay or postpone divorce. Financial fear is especially real for those who don’t control family finances.
But don’t let the fear of your spouse dictate what you do.
That’s because Virginia state laws are designed to protect those who decide to separate financially. In other words, Virginia is an equitable distribution state.
In this article, we’ll cover the laws of Equitable Distribution in Virginia.
And because divorce is hugely personal, I always recommend people reach out to to a divorce pro in their area for help. But to get you started, here’s how Equitable Distribution in Virginia works.
What is equitable distribution in Virginia?
According to code § 20-107.3, the state of Virginia defines equitable distribution as “arriving at a fair and equitable monetary award.”
That means, regardless of who initiates a divorce, the state of Virginia will ensure that each party will get a fair share of marital assets. These laws are designed to make sure any party can file for a no-fault divorce without worrying about receiving an appropriate portion of assets.
Virginia laws follow that of other Equitable Distribution states. These laws differ from Community Property states, where courts split marital assets and liabilities 50-50.
What are marital assets?
In a divorce, the courts will divide assets into two categories:
- Marital assets. Jointly owned assets generated or acquired during the marriage
- Separate assets. Assets acquired before marriage and kept in different names.
In every US state, separate property remains separate. Only marital assets are subject to equitable division between spouses.
The importance of equitable distribution in Virginia
There’s a temptation to assume Equitable Distribution in Virginia means splitting marital equally (as in 50-50). But often, dividing assets 50-50 causes UNEQUAL outcomes, especially for lower-earning spouses.
Example 1. High income, but low assets.
Many families in Virginia have very high incomes relative to savings. Common reasons include
- Self-education. Spouse pursued higher education (Ph.D.) to advance in a career
- Children’s tuition. The family just finished paying off children’s college education
- Retirement savings. Majority of savings in illiquid military or government benefits
In many cases, the lower-earning spouse sacrificed their earning power so that their spouse could earn more. In Virginia, 55% of assets or more is often awarded to the lower-earning spouse to compensate for his or her reduced future earnings.
Example 2: One spouse has a large trust fund.
What if one spouse has significant separate assets? For instance, imagine a couple has $5 million of marital assets, but one spouse has a $10 million trust fund as well in his name. Should the $5 million of marital assets get divided 50-50?
In the State of Virginia, the answer is likely “not 50-50.” The $5 million will likely get divided so that the wife receives a more substantial portion.
How does equitable distribution in Virginia work?
Because divorce is such a traumatic experience for everyone involved, laws have been refined to help couples come to amicable conclusions.
Dividing joint property
Equitable distribution in Virginia means couples must distribute jointly owned property in a fair fashion. Typically, the lower-earning spouse will be entitled to either spousal support or a greater share of marital assets.
- Simple division of financial assets. In the case of easily-divisible joint assets, such as bank accounts and stock/fund investments, each spouse can simply withdraw their share of assets in an equitable portion once the divorce agreement has been finalized.
- Division by court order. Some assets, such as pensions and defined-contribution 401(k) plans, often require court orders to divide. To do this, a divorce advisor will issue a Qualified Domestic Relations Order (QDRO) that will get ratified by the court and sent to the pension plan sponsor. Again, this must be done equitably.
- Transfer the entire property to one party. When circumstances dictate, the courts may decide the fairest action is to give the whole property to one spouse (and often compensate the other spouse with another piece of property from marital assets). Transferring can reduce the costs of liquidating the estate.
- Allow one party to buy the other out. When one or both spouses want an illiquid property, they’re often given the “right of first refusal” of buying each other out. Buyouts can happen for real estate, small businesses, or even retirement savings plans.
What about joint property in one spouse’s name?
Often, one spouse deposits his or her earnings into their bank account. Does this mean it’s separate property?
The answer is an emphatic “no.” In the State of Virginia, all earnings generated during a marriage are joint property, no matter the bank account. Individuals can’t create “side-pots” that their spouse can’t reach.
Additionally, this means the spouse that controls family finances cannot “lock out” the other spouse during the divorce.
Dirty tricks that Equitable Distribution in Virginia covers
If you’re worried about your spouse taking revenge during a divorce, it’s essential you know your rights.
- Lawsuit costs. In the case of lawsuits, equitable distribution in Virginia states that “Costs may be awarded to either party as equity and justice may require”. § 20-99 In other words, if your spouse decides to harass you by shutting off your access to family finances during a separation, a judge will likely take that into account when considering the justice to be served.
- Wasting or hiding money during a divorce. What if, on hearing that you want a divorce, your spouse starts hiding assets or spending money on himself? Do you have any recourse? Fortunately, in Virginia, you’re entitled to reclaiming assets. According to Virginia law: 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”. That means if your spouse decides to waste $10,000 in Las Vegas on learning you want a divorce, a judge will generally deduct that $10,000 from his final piece of the marital pie. Learn more about finding hidden assets in divorce
- Mis-valuing assets. Virginia is home to almost 750,000 small businesses. These assets are often difficult to value and require additional help to divide. If your spouse owns a business, make sure you know the value of the company. It’s tempting just to count the money in the bank. But everyone knows that the value of the company is far more than book value.
- How much will the company eventually earn?
- Does the company have substantial accounts receivable? (Money earned but not yet received)
- How much are intangible assets at the company worth? (Brands, existing relationships)
5 Steps to achieving equitable distribution in Virginia
Now that we’ve covered the importance of equitable distribution, here are five steps you can take to start your path.
1. Seek knowledgable, local advisors
Because divorce is such a significant life event, you want to make sure that you’re covered. That’s why it makes sense to reach out to good lawyers and advisors.
Having the right advisors early on will help you down the road when it comes to achieving equitable distribution. Here are some resources for Virginia residents.
Most importantly, competent advisers can help you decide where to start. Divorce is a lengthy process that often costs tens of thousands of dollars and many months of negotiations. Emotions can run high, but with the right advisors, you’ll have a far greater chance of achieving a proper resolution. Learn more about selecting the right financial advisor
2. Gather financial documents
If you and your family have significant assets, make sure you catalog your wealth EARLY in the process. A financial advisor can help you significantly since you want to record everything. Assets may include
- Bank accounts. Checking, savings, CDs and money market funds
- Investment accounts. Stock, bond and fund accounts
- Long-term assets. Pensions, insurance, and retirement assets
- Personal property. Tangible assets, lock-boxes, collectible items
- Businesses. Private businesses, income-generating real estate
- Liabilities. Debts, mortgages, credit card balances
You want to ensure that assets don’t suddenly go missing when you start the divorce process. Most professional families have at least 10-15 accounts once you begin adding them all up. And it’s easy for an account to “disappear” if you don’t have a clear initial starting point. Learn more about marital assets and divorce
3. Review Virginia’s Equitable Distribution Laws
If you’re reading this article, you’re already on your way to understanding your equitable distribution rights in Virginia. Nevertheless, it pays to do your research. I recommend sitting down with an advisor and covering the specific pieces of Virginia law listed in section § 20-108.1.
That’s because divorce laws differ on a state-by-state case. Getting information online might give you facts for one state that isn’t applicable in others.
4. Talk to your spouse
Once you understand your rights, it’s time to talk to your spouse.
I know it’s not easy. But you owe it to your spouse to come to the table.
That’s because there are three primary ways to settle a divorce.
- Court-based. When couples can’t negotiate an equitable settlement, lawyers and the courts often have to get involved. In this process, Virginia courts will allow both sides to make a court case, and a judge will issue a final, binding resolution that he or she deems equitable. But because outcomes aren’t negotiable, the result could make both sides unhappy. It’s also the most expensive of the three options, costing $50,000-$150,000.
- Mediation. When the couple can agree to work together, outcomes are usually better. That’s because the couple can negotiate and come to an amicable conclusion. A neutral mediator or divorce advisor can ensure that financial results are equitable, and a judge must ratify the final agreement. Final ratification prevents one spouse from taking advantage of another. It’s the least expensive divorce option, costing $10,000-$50,000.
- Collaborative Divorce. The collaborative process is a newer form of divorce where couples each have separate legal representation, where all parties agree to negotiate and work together. Teams typically employ a financial advisor and a child-care expert to create a comprehensive roadmap to separation. Fees range from $30,000-$100,000 because each side needs to hire a lawyer.
5. Follow up with your advisors
To ensure an equitable distribution in Virginia, you have to stay in touch with your advisors. Often, they’ll have no idea what assets are meaningful to you. That’s because these are personal choices that only you (and your children) may know. These can include
- Family house
- Heirlooms or gifts received by the couple
- Retirement accounts
- Private businesses
- Pets and tangible property
- Advisors also need to know the importance of child custody and visitation rights for each party.
That’s because each side needs to prioritize what’s important. Equitable distribution in Virginia means getting a fair outcome, which generally means each party will receive the things that matter most to them. For example, you’ll probably want to keep your side-business as your own far more than your spouse would.
Where to find more resources
If this seems like a lot of information, don’t worry. The great news is that help is available. That’s because here at Jurnex, we work with individuals and families just like you to make the most out of investing. I’ve helped invest client money for over a decade in the same old-fashioned way. And that’s to seek out great companies in great industries that can you can buy at a discount to their fair value. Sounds too simple to be true? Give me a call today, and I’ll show you that it’s still possible after all these years.
We are an independent registered investment advisor and asset manager. We have the securities backing of Charles Schwab, yet we retain our operational independence from any third party. This means you can have the confidence your money is safe with one of America’s best brokerages and still receive knowledge and advice from an independent firm focused on YOU.
Want to learn more?Book an Initial Meeting