How Can I Best Protect My Business Assets in a Divorce?

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Navigating a divorce is, without doubt, a challenging endeavor, particularly when there are significant assets involved. Tennessee, with its equitable distribution approach to divorces, seeks to divide marital property fairly, but not necessarily equally. If you’re a business owner, you might be asking, “How can I shield my business from the complexities of this process?” Please continue reading and reach out to a dedicated Shelby County, Tennessee divorce lawyer from Rice Law to learn more about how to best protect your business assets from a divorce.

Protecting Your Business Assets in a TN Divorce

Understanding the timeline of when your business was established relative to the commencement of your marriage is vital. In Tennessee, property acquired before the marriage typically remains separate unless it’s been co-mingled with marital assets. If your business was founded before your wedding, it might remain exclusively yours. However, any increase in its value during the marriage could be considered marital property. What steps can you take if this is your situation?

  1. Maintain Clear Financial Boundaries
    • Separate Accounts: Always keep distinct bank accounts for your business and personal expenses. Avoid the temptation to dip into marital savings for business needs or vice versa. This clear separation ensures that your business finances are not intertwined with your marital assets.
    • Transparent Record-Keeping: Regularly maintain and update financial records for your business. This transparency will make it evident that no co-mingling of assets occurred. In the event of a dispute, well-documented records can be your best defense.
    • Avoid Personal Guarantees with Marital Assets: If your business needs a loan or credit, refrain from using marital assets as collateral. Doing so can blur the lines between what’s considered a marital and business asset.
  2. Utilize Prenuptial or Postnuptial Agreements
    • Specify Business Provisions: Within these agreements, explicitly define terms concerning your business. For instance, stipulate that any appreciation in the business’s value remains separate, or define compensation for a non-owner spouse’s contribution to the business.
    • Update Regularly: As businesses evolve, so should the terms within your agreement. Review and amend the agreement as necessary, especially after significant business changes, like acquisitions or substantial growth.
  3. Protect with a Trust
    • Choose the Right Trust: There are various types of trusts, like revocable and irrevocable. It’s crucial to select the one that best aligns with your goals. Typically, an irrevocable trust offers more protection since assets within it are not considered your personal property.
    • Appoint a Trustee: This is someone who will manage the trust. While it could be you, it might be strategic to appoint an independent third party, solidifying the notion that the business operates separate from your marital affairs.
  4. Draw a Competitive Salary
    • Consistent Compensation: Your salary should reflect market standards for your position. Regularly review your compensation to ensure it aligns with industry benchmarks.
    • Reinvest Wisely: If you’re considering reinvesting into the business, ensure that it’s a genuine need and not a strategy to lower personal income. Courts can recognize attempts to shield money by reducing personal income.
  5. Consider Selling Your Business
    • Valuation is Key: If contemplating a sale, have your business professionally valued. This ensures you and your spouse have a clear understanding of its worth, simplifying asset division.
    • Tax Implications: Remember that selling a business can come with significant tax implications. Consult with a financial advisor to understand the potential fiscal impact.

Protecting your business assets in a Tennessee divorce requires a blend of foresight, guidance, and sometimes, difficult decisions. By understanding the available protective measures and proactively implementing them, you stand a better chance of ensuring your business remains intact and thriving post-divorce.