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Splitting the family business in a divorce

On Behalf of | Feb 14, 2020 | Divorce

The division of marital assets is an essential component of a Tennessee divorce. Spouses must identify and provide the value of each item, from vehicles and real estate to bank accounts and retirement funds. Unfortunately, not all assets are easily split, especially when it comes to the family business. 

According to the American Bar Association, you must determine whether your private business is separate property or a marital asset. Contributing factors to this determination include the following: 

  • If you or your spouse owned it before the marriage date 
  • Source of the funds used in the business acquisition 
  • The extent of each party’s efforts 
  • Individual financial contributions 

Valuation of the business is often a contentious process and the source of significant disagreement. There are several acceptable approaches when determining the fair market value. Independent appraisers can help ascertain how much the entity is worth, and each partner typically hires their own expert. If you and your spouse cannot agree and end up in litigation, a judge will decide which expert has the most credible valuation. 

After the valuation has concluded, you may buy out your spouse sell the business or remain co-owners. If there is sufficient liquid assets or cash, buying out the other spouse is the most popular option. In circumstances where a buy-out is not feasible for either party, selling the business and splitting the proceeds may be the cleanest solution. 

If both of you want the business, joint ownership is also an option. Working out the details of how this can work is stressful. However, each situation is unique. Addressing the pros and cons of each option is critical, especially if there is significant debt, other owners or third-party agreements involved. Visit our webpage for more information on this topic.