How Are Family Businesses Divided During Divorce?

Splitting up property during a divorce is never easy, and when there is a valuable asset like a shared company involved, it can be even more complex. There are many unique ways that you and your spouse can divide the family business during your divorce to ensure that it is an equitable split. To learn more and secure representation, reach out to an experienced Memphis, Tennessee business valuation divorce lawyer today.

Is Tennessee an Equitable Divorce State?

Yes, Tennessee is what is referred to as an equitable divorce state. This means that during a divorce, all marital assets are divided between the spouses in a way that is fair and equitable, but is not necessarily equal. To determine what split is equitable, the court will consider a variety of factors, including the amount and types of assets involved, the length of the marriage, contributions made by each spouse, the economic situations of each spouse, and more.

These equitable distribution laws apply to all jointly owned assets, which often include family businesses.

Are Businesses Subject to Distribution During a Divorce?

If you and/or your spouse owns a business, it can complicate the property division process during your divorce. The first step is to determine whether the business is considered marital or separate property. If the business was acquired or started during the marriage or with marital funds, it is considered jointly owned property. However, even if one spouse started or bought the business before the marriage and with their own separate property, it can become marital property over time if certain circumstances apply.

If one spouse owns a business before the marriage, but the other spouse contributes to the company over the years through financial funding, labor, ideas, or sacrifices that allow the other spouse to continue running the business, it can be considered jointly owned.

How Are Family Businesses Divided During a Divorce?

If your family business is considered marital property and is therefore subject to equitable distribution, it can be done in a few different ways. See below.

Sell: You and your spouse can agree to sell the business to a third party and split the profit equitably
Buyout: You or your spouse can offer to purchase the other’s interest in the company and retain full ownership
Co-ownership: You and your spouse can agree to continue owning and operating the business together
Compromise on other assets: You or your spouse can offer to forfeit your right to other assets of equal value to maintain ownership of the company, like allowing the other to retain the marital home, for example
Division: You and your spouse can divide the company into separate entities or restructure so that you each own distinct parts of the business

You and your spouse can decide how to divide your business through private negotiations, mediation, or other dispute resolution techniques. If you cannot agree, however, the judge will make the final decision.

For more information on your rights and options during the property division process, consult an experienced family law attorney at Rice Law today.