Protect your Business in Divorce

As a family law attorney, I work with business owners who want to know one thing: will my spouse get part of my business? In Kentucky and Tennessee, a business started during the marriage is generally marital property, and its value is divided in the divorce. A business owned before the marriage generally stays with its owner, but any increase in its value during the marriage can be marital if either spouse's efforts contributed to that growth. How the business is valued, and what records you have, often decide the outcome.

Is my business marital property?

Started during the marriage: generally marital property, even if only one spouse runs it and it is titled in one name.

Owned before the marriage: generally belongs to the original owner. Kentucky calls this nonmarital property, and Tennessee calls it separate property. But:

  • Kentucky: an increase in the value of nonmarital property during the marriage is marital to the extent it resulted from the efforts of either spouse during the marriage.
  • Tennessee: income from, and appreciation of, separate property during the marriage can be marital if each spouse substantially contributed to its preservation and appreciation. A spouse's contributions can include homemaking and childcare.

Mixed: when marital money or effort went into a premarital business, part of its value may be marital. The spouse claiming the nonmarital or separate part generally has to prove it with records.

Kentucky divides marital property in just proportions, and Tennessee divides it equitably. Neither requires a 50/50 split.

How is a business valued in a divorce?

Business valuation is often the most disputed issue in a business owner's divorce. A qualified valuation expert typically reviews financial statements, tax returns, and the business's income, assets, and market, and prepares a report that can be used in negotiation or at trial. Each spouse may hire their own expert.

Divorce usually does not mean splitting the business itself. More often, the owner keeps the business and the other spouse receives other property or payments equal to their share of its marital value.

Steps to protect your business

1. Put a prenuptial or postnuptial agreement in place

A properly drafted agreement can define the business as separate property, set how it will be valued, and set what the other spouse would receive. Kentucky and Tennessee both enforce these agreements when they are entered into voluntarily, with full disclosure of each spouse's finances. An agreement signed without disclosure, or under pressure, is vulnerable. A postnuptial agreement, signed after the wedding, can face more scrutiny, so it needs to be drafted carefully.

2. Keep business and personal finances separate

Use separate bank accounts, keep clean books, and do not pay personal expenses from the business or put marital money into it without documenting it. Separate records will not make a marital business nonmarital, but they are how you prove what is nonmarital or separate and how you support an accurate valuation.

3. Use a buy-sell agreement if you have partners

A buy-sell agreement among business partners can require that an owner's interest be sold back to the business or the other owners, at a set valuation method, if an owner divorces. That keeps ownership and control with the partners and gives everyone a clear process.

4. Get a qualified valuation early

If divorce is likely, an early, independent valuation gives you a realistic picture of what is at stake and a basis for negotiating.

5. Do not hide assets or divert income

Moving money out of the business, delaying invoices, or understating income during a divorce usually backfires. Both states require financial disclosure, and discovery, subpoenas, and forensic accountants can uncover it. Courts can account for wasted or hidden assets when dividing property, and your credibility with the judge suffers.

If you are the spouse of a business owner

The same rules protect you. Your contributions to the marriage, including managing the home or supporting the business, can count toward the marital value of the business. Formal discovery can require complete business records, and an independent valuation keeps the numbers honest.

How Wise & Associates can help

Wise & Associates handles divorces involving businesses, real estate, and retirement accounts in Kentucky from its Louisville office and in Tennessee through Wise Law in Nashville, representing both business owners and their spouses. Fees are staged flat fees, never hourly, with upfront fees from $1,500 to $5,000 depending on the case type and how much litigation is required. See how pricing works.

Consultations are free and by phone. Book a time, then call the office at your scheduled time.