In addition to marrying and starting a family, some couples take it a step further and start a business together. While it is admirable to see anyone take on a business venture, things can get challenging if the married couple has to divorce.
When a married couple begins the divorce process, their assets must be divided equally – and that may include the business. The chances are very good that your ex cannot take your entire business from you, but that doesn’t mean there are no risks.
Whether your soon-to-be-ex is entitled to a portion of your business depends on whether your business is classified as marital property or separate property. Every divorce proceeding divides assets into marital or separate properties. Marital property is an asset that was obtained during the marriage. If your business was created during the course of your marriage, the courts could consider your business as marital property. If your business was formed before your marriage, your business should be considered separate property, an asset acquired before your union.
But of course, there are exceptions to every rule. For example, if your family business is an LLC and there are other members, then only your interest (as a member) in the business is marital property. If you are answerable to shareholders, your divorce can cause investors to get nervous – so even if your spouse never directly looks to take your business, you may find yourself in rocky territory, anyway.
What if my business is in my name? Will my business be considered separate property?
Not necessarily. Only having your business in your name is not enough proof to classify it as separate property. There are many occasions when one spouse will decide to share their separate property with their spouse. Depending on other factors, your ex-spouse could still be entitled to a portion of your business, even if your business is separate property.
For example, if your ex-spouse contributed a sufficient amount of income or value to the business to sustain it, your ex-spouse could be entitled to half of the business.
Another way that this occurs is through what is known as commingling of assets. For example, say you have a trust fund. You take money out of that fund and put it in a joint account. The separate money that was removed has commingled with your marital account, and thus is divisible. As such, if you take marital assets and put them into the business, then the business assets have commingled with the marital ones, and suddenly your business is a joint asset.
How will my business be divided during the divorce?
If your business was created with your spouse during the course of your marriage, you and your ex-spouse would have a chance to come to a mutual agreement about how your business will be divided – if you choose to divide it at all. Some divorced couples remain business partners. If you and your ex-spouse cannot come to a mutual agreement about the division of the business, it will be up to the courts to determine how the business will be divided. Tennessee courts will use the equitable distribution model to properly divide the marital assets in a divorce.
The equitable distribution model is a standard that courts use to determine a fair and just division of all of a couple’s marital assets. Not all marital property will be subject to the equitable distribution model. For example, any marital assets obtained either as a gift or provided for in a written agreement will not be divided using this model.
How will the courts determine a fair division of my business?
There are several factors that the courts will consider when determining how to divide your business. Some of these factors include:
- The value of the business, as well as any other business interests
- The extent to which each spouse contributed to the business
- Whether there are any prenuptial agreements in place
How will the courts value my business?
The courts will determine the value of your business either by the fair market value or by using the services of a financial expert. All marital properties are usually evaluated based on the time period that the divorce has been filed. However, because assets are known to increase in value, the courts may allow both parties to benefit from the appreciation of their marital assets based on the date of the divorce.
How can my ex-spouse’s actions towards my business affect the division process?
Even though your ex-spouse could be entitled to half of your business in certain circumstances, your ex-spouse’s actions could also affect whether they should be rewarded half of your assets. For example, your ex-spouse could be guilty of dissipation of assets – ie, frivolously or purposely wasting assets for the express purpose of denying them to you. If we discover that your spouse spent money from the business frivolously, participated in excessive gambling with company assets, or used the money generated from the business in a fraudulent or inappropriate way, it can be used against them in the divorce proceeding.
Is there any way to keep my business?
Sure. If your spouse agrees, you can buy out his or her half of the business directly, or ask other members (if applicable) to do so. You can negotiate a deal where you keep the business in exchange for your spouse getting a greater share of your personal assets. You can even continue to work with your spouse; as we mentioned earlier, a divorce doesn’t necessarily mean you have to stop working together.
At LaFevor & Slaughter, our Knoxville divorce attorneys understand how important it is for you to protect your assets in a divorce – especially if one of those assets is a business. Instead of becoming stressed about the legal battle that you and your ex-spouse are about to embark on, allow our divorce attorneys to fight vehemently on your behalf and protect all of your assets. Call our office at (865) 637-6258, or fill out our contact form for a free consultation.
Patrick Slaughter is an experienced Knoxville attorney passionate about helping families resolve legal issues including divorce, family law matters and immigration. Patrick graduated from Lincoln Memorial University – Duncan School of Law, summa cum laude and is a published author. Patrick is a member of the Knoxville Bar Association as well as the Tennessee Bar Association. Contact Patrick Slaughter at (865) 637-6258 or by filling out a case evaluation below.
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