If you are considering divorce, you may be concerned about the division of marital property, which can be one of the most challenging parts of a divorce. You may think of things such as your family home, other real estate investments, financial accounts, and even retirement accounts. But if a family business is involved, that could also be subject to marital distribution.
Maybe you entered into your marriage as a business owner or started a business after getting married. Did you and your spouse set up a business as a joint enterprise making you business partners? Or maybe you may not realize that you may have a right to claim over the family business. Going through divorce as a business owner can be complex, and you have a lot to lose.
Your business is likely one of your most important assets, so knowing how your business will be affected by your divorce is essential. This article will discuss how your business can be affected by your divorce in Tennessee.
Is Your Business Marital Property?
It can sometimes be difficult to determine what is personal property and what is marital property. An example would be a bank account that is only in your name. You may believe it is personal property. However, it can be considered marital property in a divorce.
The same goes for your business. If it’s in your name, but you started it after you were married, it could be considered marital property.
Most of the time, assets you owned before your marriage aren’t regarded as marital property, but in some cases, a business could be. If you owned the business before your marriage, but your spouse contributed to the business to help increase its value during the time you were married, part of it could be subject to equitable division.
Determining the Value of Your Business
Below are some ways that the value of a business can be determined.
- The market approach is the most common method used in determining the value of a business. The company’s purchase history will be considered as well as the state of other businesses in the industry. The market will be evaluated, and an estimation of what other companies would sell for will give an approximation of the value of your family business.
- The income approach evaluates your business on its current state of earnings. These figures will then be used to approximate future income, leading to an estimated value of your business.
- The discounted income approach estimates the expected cash flow. That figure is then discounted based on a variety of risk factors that may affect it resulting in an adjustment of the cash flow. That final value is then used to estimate the value of your business.
Dividing the Business In a Divorce
Tennessee is an equitable division state. That means that in a divorce, marital assets aren’t split 50/50.
If the court is involved in the property division, they will attempt to divide marital assets in a fair and equitable manner. The division of assets is determined by factors such as each party’s income level, their age, and how long they were married.
The way a business is divided in a divorce depends on the circumstances involved. Here are some ways a business can be divided in a divorce.
- Buy-out — In this case, one spouse buys out the other’s interest in the business. This can be accomplished by paying cash or with other marital assets.
- Co-ownership — If the couple still has an amicable relationship, they may continue to share interest in the business. This approach would require you to become a co-owner with your ex and share the responsibilities of the business.
- Sell the business — Similar to how some couples sell their home and split the proceeds, the same can be done for a business. This is a great option if you are unable to buy out your spouse or if you are unable to run the business together.
If there is a prenuptial agreement that addresses the ownership of a business in the case of a divorce, the court must follow that agreement. When there is no prenuptial agreement, the court will look at many factors before dividing the business.
One thing they will look at is if a spouse owned the business coming into the marriage, but the other spouse played a more significant role in running the business, therefore adding more value to it. They will also consider the ability of each spouse to make a comparable income not being involved in the business.
Get Expert Legal Counsel From Attorney Hunter Fowler
Every situation is different, but one thing is the same, a family business adds an extra level of complexity to an already stressful situation. Having an experienced family law attorney on your side will ensure your interests are protected and you are awarded your fair share of marital assets.
Hunter Fowler, a Murfreesboro Attorney, knows that divorce can make you feel confused and vulnerable. So you need the best legal counsel possible to ensure that you get the outcome you want for yourself and your family. Our team will guide you throughout the process and make it as seamless as possible.
Contact us today for a consultation.