Hugh v. Hugh – Virginia Divorce and the Family Business

A divorce that involves a family business is undoubtedly complicated. However, with the help of an experienced Fairfax divorce lawyer, the business can be fairly valued and equitably divided.

This does not necessarily mean both parties will retain the same ownership rights. For example, one may buy out the other. One may keep the business and its assets, while the other is granted some combination of the marital home, spousal support and certain retirement accounts. The exact outcome will depend heavily on the circumstances, including the skills and contribution of each individual.

What is important is that your attorney ensures the business receives a proper valuation. That means securing the services of a qualified expert in business valuation, a person who will work side-by-side with your attorney to gather the necessary documentation, interview relevant parties and, if necessary, testify at trial.

This kind of situation was recently at issue before the Court of Appeals of Virginia in the case of Hugh v. Hugh, an appeal from the Circuit Court of Prince William County. Here, the husband appealed the court’s determination on spousal and child support, while the wife cross-appealed the trial court’s declination to value and equitably distribute the parties’ interest in her husband’s business as a marital asset, among other elements.

According to court records, the pair married in 1997 in South Korea and moved to the U.S. shortly after. They had three children during the marriage, with the wife acting as the primary caregiver and the husband the primary wage earner. The husband owned and operated a business which he regularly dissolved and then re-incorporated under different but similar names. Although the court was unable to clearly ascertain the nature of the company, it appears the husband acts as a sort of broker for the semiconductor industry. However, the record is convoluted, and the court was unable to determine exactly what or how the business was conducted.

By all accounts, however, the business was successful and owned and operated solely by the husband.

In sorting out the equitable division of assets, the court heard testimony from the husband that the business was valued at “nothing.” And it could not be verified in any sort of documents that the business did have anything.

However, tax documents in recent years indicated the firm raked in between $6 million and $10 million annually in revenue, with profits ranging from $400,000 to $700,000 a year. Before the most recent dissolution of the firm, the wife had been named a majority owner, with the husband owning the remaining 49 percent.

The court also heard testimony from the wife’s expert witness. However, the husband did not give the expert enough definable evidence to provide a clear valuation, though he indicated it had an intrinsic value of $1.4 million. The expert conceded this evaluation didn’t meet the standards of the American Institute of Certified Public Accountants, but said that was only because the husband only made limited data available to him.

The court indicated there was insufficient evidence on which to place a value on the business. The court indicated it would not submit a finding of value or distribute the business.

Upon appeal, the court found no merit with the husband’s assertions regarding unfair child and spousal support. However, the appellate panel did find error with the trial court’s refusal to value and distribute the company equitably.

The appellate court noted that under Virginia law, while both parties in this situation have the burden of bringing forth sufficient evidence for the court to consider, the trial court must assign a value and equitably distribute the award. There is no exact formula for doing this, and courts are given a great degree of discernment in this regard.

For advice on divorce, child support or other family law matters in Fairfax, VA, contact DiPietro, PLLC at (703) 647-7404.

Additional Resources:

Hugh v. Hugh, June 3, 2014, Court of Appeals of Virginia

More Blog Entries:

Challenging Enforceability of Virginia Prenuptial Agreement, Aug. 21, 2014, Fairfax Divorce Lawyer Blog

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