How a business may be handled in a divorce

On Behalf of | Feb 25, 2019 | Divorce | 0 comments

Tennessee individuals can protect their companies in case of divorce through the enterprise’s organizing documents or with a pre- or postnuptial agreement. Since people may find discussing pre- and postnups difficult, the owner may opt to establish in the organizing documents that the business is separate property as well as how much his or her spouse may get in a divorce.

If there is no agreement in place that establishes the business as separate property, its value must be assessed. This can be expensive and intrusive, but if a business owner has kept good records, it may proceed with less difficulty. All business transactions, including those made with cash, should be tracked and kept separate from personal finances.

The degree of involvement on the part of the spouse who is not an owner should also be clear. If the business is funded with marital finances, this could mean the spouse has more leverage to ask for a larger percentage of the company. This may also be the case if a spouse does work for the company but is paid less than market rates.

Some business owners pay themselves a salary that is significantly below market value. They should be aware that if they will be required to pay child or spousal support, this amount may be calculated using market rates for their salary.

Pre- and postnuptial agreements must be prepared correctly with adequate legal counsel for both spouses in order to be considered valid. If there are no issues with the agreement, even in a high-asset divorce with complicated finances, it may simplify the process of property division. However, if there are children, custody and support must be decided separately. This does not mean the couple must go to court. These issues can be negotiated out of court and submitted to a judge for approval.