The importance of proper business valuation in Tennessee divorce

It is vitally important that a proper business valuation take place during a Tennessee divorce involving a small business. This will ensure a fair divorce property settlement.

When a marriage ends, there inevitably follows stress and anxiety. This is because of emotional entanglements as well as practical difficulties of deciding who will get the marital home, divvying up shared assets, making custody and visitation arrangements and establishing two separate households. Even when there is a relatively modest amount of marital property to divide, the process can be difficult, particularly if there are assets that can be difficult to intrinsically value.

In such situations, all property must be correctly appraised and evaluated. This is crucial if there is to be a fair divorce settlement, and it is never more true than in the case of such complex marital property issues as a family-owned or small business.

Background on Tennessee's property division scheme: equitable distribution

Many people hear the phrase "equitable distribution" and assume that it means that any marital property will be split 50/50. While that may happen in some circumstances, it certainly isn't true for every couple. Instead, Tennessee family court judges make property division determinations aimed at providing each spouse with a fair, "equitable" portion of the marital estate; this may mean that the exact financial values of each spouse's share may not be equal, but the goal is to devise a way that each receives a proportionate amount of assets. This may mean, for example, that one spouse gets to keep the valuable marital home in exchange for the other spouse receiving the majority of the couple's liquid assets like bank accounts and investments.

Property division is based on the entirety of the divorcing couple's situation, taking into account such factors as:

  • Length of the marriage
  • Size of the marital estate
  • Earning capacity of each spouse
  • Contributions each spouse made to the growth of the couple's marital property
  • Each party's individual, separate property

Complications of small business ownership during divorce

According to data provided by the United States Small Business Administration, there are more than 560,000 small businesses in Tennessee. These companies are a driving force of Tennessee's economy, and they make up more than 97 percent of the state's employers. Despite all the positive contributions made by small businesses, however, the fact remains that these companies can be difficult to properly value.

Should a small business owner be involved in a divorce, it will be necessary for a proper business valuation/appraisal to take place to help determine key issues like:

  • The actual net and gross income of the company once personal expenses (many of which can legally be claimed as legitimate tax deductions) are taken into account
  • The value of shares of the company were it to be sold
  • The company's expenditures, including overhead, salaries (especially those of the divorcing couple), etc.
  • Which method of valuation will yield the most appropriate and well-balanced result
  • Whether parties who are co-owners will be able to run the business together following a divorce, or if all shares of the business should be allocated to a single spouse (and how to best compensate the other party for his or her interest in the company)

Regardless of the methodology ultimately used, or even the end result, no divorce involving a family-owned or small business should take place without a proper business valuation. Taking this step can help stave off conflict in the future, and might give your business a greater chance of long-term survival. For more information about this and other Tennessee divorce-related topics, contact the experienced family law attorneys at Hartzog and Silva.

Keywords: divorce, complex property division, asset division, business valuation, small business, family business