What a Business Owner Needs to Know Before Filing for Divorce
For business owners, one of the most important things to protect during a divorce is the business. Divorce cases can become more complicated when a business interest is involved. The business may be considered marital property and subject to division under Tennessee divorce laws. How the business is valued is an important consideration when dividing assets between the spouses. A knowledgeable Tennessee divorce attorney is key to helping business owners understand their rights during the divorce process.
Determining whether a business is marital property
Tennessee is an equitable distribution state. If the parties are not able to reach a fair agreement, the court is tasked with the responsibility of determining how to divide the property. The court will try to divide the property fairly between the parties, but a fair split is not necessarily completely equal. A family law court determines which property is separate and which is marital. Only marital property is divided during the divorce.
To determine whether a business is marital property, the court may consider factors such as:
When the business was started – If the business was acquired before the marriage, it may be considered separate property that is not subject to division. However, there are exceptions to this, such as if the business was treated as joint property during the marriage or the business’ value increased because of contributions by the non-owning spouse.
Acquisition of the business – The court can also consider how the business was acquired. Family businesses may be passed down for generations.
Contributions to the business – Another factor that may be considered is how the spouses contributed to the business during the marriage. Even if the business was passed down from another generation and was owned before the marriage, some of the business or all of it may be subject to division if the other spouse substantially contributed to the business and its value increased during the marriage.
Effect of business ownership on equitable distribution
Often, the parties do not want to continue working together at the business after divorce. If both spouses are entitled to a portion of the business’ value, one spouse may have to buy out the other spouse’s share in the business. In the context of divorce, this may mean that one spouse retains the business while the other spouse retains full ownership of another valuable asset like the marital home. In other situations, the business may be sold to a third party and the sales proceeds to be apportioned between the spouses. To fairly divide property, the business must be properly evaluated.
Business valuation methods
Tennessee family law courts are not required to apply a specific evaluation method to determine the financial value of a business. Some accepted standards of valuing a business include:
Fair market value – The fair market value is the price that a willing buyer would pay in an open market. This value is determined by subtracting any existing liabilities from the value of the business on a specific date.
Liquidation value – The liquidation value is what an owner would receive for the assets if the business had to be sold in a distressed state.
Going concern value – This value is based on a group of standards of value that see a business as an ongoing functioning enterprise.
Book value – This method is simplistic in its approach. It adds all of the assets and deducts the liability to get the value.
Original cost value –This is the startup cost or cost to purchase the business.
The court may not insist on any particular valuation method. It may consider some of these values even if the imputed value is a combination of them. Expert witnesses may provide testimony about how much the business is worth. The court may consider all available evidence to determine the value of the business. If the parties do not want to litigate the issue, they can agree on the valuation method for the business.
If you are a business owner facing divorce, contact our savvy Murfreesboro divorce lawyers for guidance you can trust
Murfreesboro divorce attorneys are knowledgeable about equitable distribution principles and various valuation methods. We apply these principles to your case to ensure you receive the divorce settlement you want. With more than 35 years of combined experience, the divorce attorneys at Dotson and Taylor, Attorneys at Law have seen it all – we know where to look and how to best protect your interests. Contact us online or call 615-890-1982 to schedule a complimentary and confidential consultation.