How to Address Family-Owned Businesses in Tennessee Divorces

Navigating a divorce when you own a family business can be complex and stressful. Many business owners worry about the potential impacts on their business, including the possibility of losing or having to shut it down. At LaFevor & Slaughter, our family law attorneys in Knoxville provide the support and guidance you need to find the best path forward. Here are key considerations to help you protect your business during a divorce.

The division of assets and debts in a marriage

Tennessee law requires an equitable division of debts and assets accumulated during the marriage. Equitable division means fair but not necessarily equal, so assets are not always split down the middle.

If you and your spouse can agree on how to divide business assets and debts, the court will likely uphold the agreement as long as it believes both parties are fairly compensated. Several factors come into play here.

Is the business marital property?

Only assets and debts considered marital property must be divided equally between the parties. If you can show that the business is not marital property, then this rule does not apply. Even though the business may be considered a family-owned business, that does not mean your family owns it outright.

Some of the questions we need to answer to determine if the business is marital property include the following:

• Did one spouse contribute all of the time and assets to start the business, or did both?
• Was the business established before or during the marriage?
• Is there a prenuptial agreement in place that addresses the management of the business in a divorce or division of property?
• Who operates and works the business?
• Is the business worth more than it was worth at the start of the marriage if it was established prior to the marriage?

The answers to these questions help determine if the business is separate or marital property. Exceptions to these rules include:

• If one party inherited the business during the marriage, the inheritance is not subject to division.
• If both parties contributed to the business’s success, even indirectly, both might be entitled to a share.

What could happen to a family business in divorce?

The ultimate decision of what happens to the business depends on the desires of both parties. Consider these scenarios when both parties have ownership of the business, or it is considered marital property:

• One person wants to maintain ownership of the business: In this situation, that party may be able to buy out the ownership stake from the other spouse. This may be done with an equitable exchange of personal assets, for example.
• If both parties want to maintain ownership of the business: They must agree to continue operating the business together. If that cannot be done, then a judge will ultimately decide the best recourse for the division of the business.
• If both parties do not want to own the business: The court may order the sale of the business and divide the proceeds equitably.

There are numerous opportunities to work through these situations. For example, if a business is profitable and both parties want to keep it operating, it may be possible to establish a contract that outlines each party’s responsibility and role in the company.

In addition to this, the profits from the business could play a role in determining child support and alimony payments. If the business is not profitable, that can play a role in a person’s ability to contribute to child support and alimony payments or the need to receive them.

How our family law attorney can help you

No matter what your objectives are in maintaining or selling the business, this is a very big decision that must be made with careful attention to the financial implications it plays in your life after divorce. As a result, it is nearly always beneficial to work with a divorce attorney in Tennessee who can provide you with various scenarios and work to represent you in fighting for what you believe is the best possible outcome.

A divorce is more than just the business. It comes down to the division of assets in an equitable manner. For help with that, allow our attorneys to offer you insight and guidance.

Schedule a consultation with our divorce attorneys in Tennessee to determine what your legal rights and obligations are in this situation. At LaFevor & Slaughter, we offer comprehensive support to our clients. With an office in Knoxville, we can help you determine the best course for your future. Contact us now to set up a consultation by calling our office or completing our contact form. Expect us to work hard to represent your best interests.