Divorce can be a trying and stressful time for anyone, but that can go double for business owners. Business owners facing divorce in Middle Tennessee need to approach property division with a sound strategy. Otherwise, if things go badly, they could risk losing control over a significant portion, having to give up an unreasonable share of other assets or dissolve the business entirely.
With that in mind, here are six factors that can affect your business during divorce.
Your spouse’s involvement
Did you start your business before you got married? If so, your business may have been separate property, rather than marital property, at the outset of your marriage. And separate property is immune from Tennessee property division.
However, it’s not always easy to keep a business outside the marital estate. Your spouse’s contributions to the business may allow him or her to “invade” it. These contributions may include working for the business or simply supporting your efforts in another form, such as keeping house or managing the household finances.
Commingling personal and professional finances
Your spouse’s contributions aren’t the only thing that can draw your business into the marital estate. You can blur the lines by spending business funds for personal uses.
Your business valuation
Assuming your business—or the increase in its value—ends up on the table, you want to make sure it’s valued fairly. It’s likely that both parties will bring estimated values to any hearing, and it’s fair to expect your spouse will try to assign a higher value while you’ll be looking for a more realistic, lower value. Accordingly, you want to work with a business valuator who can not only offer you a solid valuation but can also argue why his or her choice of methodology best suits your business.
Okay, this is really part of your business valuation, but it’s important enough to merit a separate breath. The value of your business isn’t set in stone. It’s a moving target. And it can rise and fall with market conditions. In a volatile market, your business can easily gain or lose significant value, and if you’re going to get divorced, it may be in your best interest to do so while your business value is depreciated.
Prenuptial and postnuptial agreements
A prenup—or antenuptial agreement—is arguably the most common and effective way to spare your business from divorce. Both parties need to enter the agreement freely, in good faith and with a clear understanding of each other’s finances. But if they do, the court should follow the terms of the agreement, rather than aim toward an equitable division of the business.
Of course, if you’re reading this on your way toward divorce, it’s too late for the prenup. However, if you haven’t filed, or you’re only concerned about the possibility, you might still draft a postnuptial agreement. This is for after you’re married, but otherwise works much like a prenup.
Perhaps this should go without saying, but it’s too important to leave unsaid. You need a strategy. Divorce is a time of major upheaval, at the least, and you will almost certainly need to make compromises along the way. If you don’t want to compromise your business, what compromises can you make that might help you keep it intact?
Your strategy should consider these things, as well as the financial and tax consequences for everything you do. Divorce is already stressful enough. You don’t want to stagger through it blindly.