Divorce can put business assets at risk, especially in a state like Tennessee, where marital property is subject to equitable distribution. If you own a business, taking steps to protect it can help prevent financial setbacks and disruptions.
Establish a prenuptial or postnuptial agreement
A prenuptial or postnuptial agreement can outline how business assets will be divided in case of divorce. These agreements clarify ownership rights and reduce disputes. Without one, the court may classify part of the business as marital property, making it subject to division.
Keep business and personal finances separate
Mixing personal and business finances can make it harder to prove that the business is separate property. Maintain distinct bank accounts, financial records, and tax filings. This separation can help establish the business as an independent entity.
Pay yourself a fair salary
If you underpay yourself and reinvest profits back into the business, your spouse may argue that they are entitled to a larger share of the company. Paying yourself a reasonable salary helps demonstrate that business earnings are being fairly distributed.
Document business ownership and contributions
If you started the business before marriage, keep records that show its value at that time. If your spouse contributed to the business, document the extent of their involvement. This evidence can help determine what portion, if any, is marital property.
Consider a buy-sell agreement
A buy-sell agreement sets terms for business ownership changes in case of divorce. This contract can prevent an ex-spouse from claiming a stake in the company or forcing its sale. Including a valuation method can also streamline the division process.
Protect business assets before a divorce happens
Planning ahead can prevent costly disputes. Knowing what steps to follow can strengthen your claim that the business should remain separate property.
