How is a family business divided during divorce?

Ending a marriage has many effects on a family’s structure, from practical to emotional implications that can be far-reaching. One of the most crucial considerations in Tennessee is the equitable division of marital assets.

Determining a “fair” distribution can sometimes result in a lengthy and contentious negotiation or court battle. The outcome can be even more challenging when one of those assets is a family-owned business, especially when a prenuptial or postnuptial agreement does not exist.

What are the options for dividing a business?

Splitting a family-run company during divorce can make an already complicated situation even more challenging. The first step is to get an independent appraisal, and once that value is established, there are three typical options:

  • One spouse buys out the other: This is the most common option for divorcing couples where the spouse that runs the company buys out the other’s interest based on the appraised value. If the purchasing spouse doesn’t have enough capital, they can work out a settlement note to be paid over time. This is usually a tax-effective method.
  • Both spouses retain ownership: For instances where both parties have emotional and financial interests in the business, they may choose to continue to co-own and jointly run the company. However, this option is seen less frequently, as many divorcing couples find it difficult to remain business partners.
  • Both spouses sell the company: This strategy offers both parties the chance to split the proceeds and start fresh, especially when both have emotional and financial ties to a family business. One potential challenge is selling to a third party can take longer and extend the divorce process.

There is no one-size-fits-all solution

Choosing the right option can be obvious or complicated, depending upon the family dynamic and the current level of involvement in the business by each spouse.

Some have no problem continuing a business relationship while others find it’s a better option to exit the company and make a fresh start. An experienced family law attorney here in Tennessee can help you find the best outcome.