What Happens to a Family Business in a Divorce in Tennessee?
When couples contemplate divorce, they look forward to the fair distribution of their property like their family home, real estate, financial accounts, and retirement accounts. One important asset they should be thinking about is the family business, which may be subjected to marital distribution.
Some people commit to a relationship while already owning an established business. Others may have begun the business after their marriage. In several cases, family businesses are set up as a joint enterprise, wherein the couple works as business partners. Sometimes, however, one of the partners may not realize that he/she is a partial business owner and may have a rightful claim over it.
Regardless of the situation, it is important that a close evaluation is conducted to ensure that both parties obtain their fair share.
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The court may consider several factors before performing this distribution. A few factors are:
- The contribution of the partner towards the increase or decrease in value of the marital/non-marital property
- The total length of the marriage
- Financial dependency and resources of both the partners involved
- Age and health of the partners
- Vocational skills and employability of the partners in question
How Is the Value of the Business Determined?
As is the case with other assets, the division/distribution of the family business during divorce begins with its proper classification as either a marital or a non-marital asset. Like all other assets that are accounted for in a divorce case, the business should be valued. However, unlike other assets, the valuation of a business can be complex and subjective.
Businesses may depend on technology and ideas that can make it difficult to be valued. A few others may be in the infant stage of growth with plenty of room to develop in the coming years. In these cases, a definite value cannot be appropriately allocated for the business.
Furthermore, if the couple has invested equally in the business, it may become difficult to estimate the actual value of the business and divide it among the two.
Also, couples may get anxious about the future of their business during the course of their divorce proceedings. This anxiety may tempt them to hide assets and the exact details of the business. This attitude may also have a negative impact on the growth of the business.
One partner may falsely try to show increased contributions towards and decreased debts owed by the business. Providing deceitful information may further complicate the proceedings.
Understanding the Different Options Available for Dividing the Business
Once the business is valued appropriately, the couple gets a realistic idea of what they may be entitled to after the divorce. It is, however, important to note that the estimated share of business and the share decided by the court after a divorce trial may not be the same.
In several cases, litigation has proved to complicate matters for the couple. They may, therefore, negotiate a settlement that is mutually beneficial. The different options available for a negotiation are:
- One of the partners may convince the other to sell their share. Though this reduces the number of liquid assets, it may be beneficial if the idea is to retain the business ownership.
- The couple may choose to continue to co-own the business. However, this may not work in contentious scenarios.
- The couple may sell the business to a third-party and divide the amount among themselves. Though this may result in the dissolving of the business, it increases the liquid assets owned by the couple.
Furthermore, if the couple has signed a pre-nuptial agreement that addresses business ownership, the clauses therein will apply to the proceedings of the divorce trial. The court will be obliged to act accordingly and offer the right to perform business operations as mentioned in the pre-nuptial agreement.
Which Factors Are Considered for the Equal Division of a Family Business?
According to divorce laws, a family business is to be divided equally in the following scenarios:
- If the business ownership was acquired during the course of the marriage.
- If there is a considerable increase in the growth of the business. This is applicable even if the business was started before marriage. The other partner is entitled to obtain reimbursements for any kind of contributions made towards the business.
- If one or several of the business assets were acquired after marriage. For example, expansion of operations and acquiring other businesses.
What Are the Ways to Estimate the Value of a Business for Division during Divorce?
Here are the various approaches used to find the actual value of a business.
- Market Approach
This is the most commonly used method to determine the approximate value of a business. In this, other businesses of the same domain and nature are compared and evaluated. The purchase history of the business is also taken into consideration. The state of other businesses in the market is evaluated. An estimation of what other businesses will sell for offers a brief idea about the value of the couple’s business.
- Income Approach
The business in question is evaluated based on its current state of earnings in the market. This value is then used to determine its future income. The total value of the business is estimated based on this value of income.
- Discounted Income Approach
The amount of cash flow that can be expected in the future is estimated. This cash-flow is then discounted based on various risk factors that may impact it, resulting in an increase or decrease in the cash flow. This value is used to estimate the worth of the business.
How Does a Divorce Attorney Help?
Dividing a business during a divorce can be a grueling process. It is important that the interest and mutual benefits of the couple be considered.
It is best to hire a divorce attorney as he/she will expertly resolve the matter in the best possible way.
Splitting the family business during a divorce can add brand new challenges to an already complicated process. Each party will have to state their intent for their association with the business, as well as propose the best way to divide the business financially. Hopefully, this post will help you understand the several important aspects involved in a divorce and the fair division of a family business in the state of Tennessee.
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