Most law firms have partnership or shareholder agreements which state a certain value for a shareholder’s interest in the law firm. Although the value set forth in these agreements is normally the most a lawyer can withdraw from the firm upon termination, it is not the value that is generally accepted by divorce courts in the state of Virginia.
The recent case of Brake v. Brake, 2014 WL1301689 (Va. App. 4/1/14), illustrates this point. In the Brake case, there was a battle of expert witnesses on valuing Husband’s interest in the law firm. The Husband's expert took the position that it was the amount set forth in the shareholder agreement, which was $20,000. The Wife's expert valued the Husband’s interest in the law firm at $308,000. The Court accepted the Wife’s valuation and indicated that was the intrinsic value to the Husband and Wife of the Husband’s interest in the law firm.
Intrinsic value of a law firm is generally significantly more than the stated value in a shareholder’s or partnership agreement. The case of Howell v. Howell, 31 Va. App. 332 (2000), the Court used an excess earnings approach to value a law firm interest at much more than the amount set forth in the shareholder’s agreement.
If you are involved in a divorce that involves a lawyer’s partnership interest, make sure you obtain a learned expert who is briefed on laws in the state of Virginia on intrinsic value and can give a reasoned and well-balanced valuation.