Few things are more rewarding than taking a unique idea and turning it into a thriving business. When that business, whether it be a sole proprietorship, corporation, partnership, or LLC, becomes successful enough to support your family and keep a workforce employed, the feeling of accomplishment is indescribable.
For business owners, their enterprise is so intertwined with their sense of identity that divorce can be especially difficult. This is because a company built or developed during one’s marriage is considered a marital asset and subject to division. A court could order you to share its value with a spouse who may never have visited the company except online.
How Is a Tennessee Business Divided in Divorce?
Many business owners assume that if they started the company before getting married, it remains separate property after divorce. This is partly true. The business (or a percentage of it if you run a partnership) may be yours, but if it increased in value during the marriage, the increase could be considered marital property. For example, if your enterprise was worth $10 million when you married but was valued at $40 million at the time of divorce, you may have to share that additional $30 million with your spouse.
Fortunately, there are steps you can take to minimize the impact of a divorce on your business: One can be applied before you are married, one takes effect after you say “I do,” and others that can protect the company even after you or your spouse file for divorce.
Prenuptial and Postnuptial Agreements
Tennessee courts will enforce prenuptial or postnuptial agreements that are fair and don’t leave one spouse at a financial disadvantage. You and your spouse can agree that, should you divorce, you retain the business while they receive marital property of equal value, such as stocks, bonds, or real estate.
While this is the ideal outcome without a prenuptial or postnuptial agreement, a signed contract can protect you if your spouse decides to be vindictive and try forcing the sale of the business and division of the proceeds.
Keep Business and Marital Assets Separate
As stated earlier, a business created before marriage is generally separate property, but this presumption disappears if your spouse actively contributes to the company in any way. If he or she invests money or skills to heighten its success, the business will probably be treated as full marital property on divorce. For this reason, business owners are advised against hiring their spouse or using marital assets like money or property to grow the enterprise.
Divorce Negotiation or Mediation
If you and your spouse did not sign a premarital agreement but are on amicable terms, you can negotiate a financial arrangement that ensures the ongoing success of the company while providing your spouse with a fair settlement. For example, you could agree that they will receive a payout or marital property of similar value. If you have trouble reaching an agreement but are still willing to work together, a divorce mediator can help you find a solution that’s acceptable to both sides.
Litigation
Sometimes divorce negotiation or mediation fail. One party may want to inconvenience the other as much as possible or both sides disagree on how to compensate the non-owner spouse for their share of the business’s value. Working with an experienced Tennessee divorce attorney can help prevent your company from being sold to settle the marital estate.
Contact a Tennessee Business Divorce Attorney
When you understand how divorce can impact a business, you can take steps to prevent it from compromised. At McCracken Kuhn Marks PLLC, we help CEOs, successful entrepreneurs, and other high net-worth owners of closely-held businesses protect the enterprise they worked so hard to build. For more information or to meet with one of our business divorce attorneys, contact us today.
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