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What happens to the family business in a divorce?

On Behalf of | Feb 7, 2017 | Divorce

When two spouses own a business together, a divorce, with its ensuing financial split, can become even more complicated. Added difficulties may arise when there are other owners in addition to the spouses.

Tennessee divorce law operates under the equitable distribution model, allocating assets more-or-less equally but with adjustments based on the couple’s particular circumstances and needs. A typical approach to many assets is to sell them off and split the value. This is often not practical or desirable in the case of a business. Depending on the nature of the business, selling it will often be a burdensome procedure that will ultimately bring in far less than continuing to operate the business would have made. In other cases, selling and dividing the proceeds is actually the best thing for everyone involved.

Approaches to division

There are a few other approaches courts usually adopt when it comes to dealing with business ownership. One of these is to let one spouse keep the business while giving the other spouse another asset of equivalent value. One spouse may also choose to buy out the other’s share. In some cases, the spouses may sell off the business while retaining certain interests in it.

This is a fairly complicated area where a one-size approach is out of the question. The best way to split up a business depends on various factors. These may include the financial health of the business, potential tax consequences of any transfers and the projected effects on each of the parties’ finances. The owners may also want to consider how easy it would be to actually liquidate the business and potential consequences to current employees.

Determining the business’s status

Another level of complication can come up, depending on the status of the business. Not all family businesses fall under equitable distribution. The business may be separate property, not subject to division, if one of the spouses inherited it or founded it before getting married. Even in these cases, however, the other spouse can have an interest in the business that is proportionate to his or her contribution to its success. In some cases, separate property can even become marital property if the other spouse contributed substantially to its maintenance and growth. If the contribution was less substantial but still significant, the judge may place the amount of the increased value into the category of joint property.

Divorcing spouses who own a business together may have a difficult time deciding which course of action is best and most fair to everyone. Consult an experienced attorney in your area to get a full picture of the options before you.


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