Business Owner Divorce in Tennessee: Why a Business Valuation is Essential

Going through a divorce is hard—especially if you own a business. If you are a business owner going through a divorce in Tennessee, it is imperative that you get a comprehensive valuation of your company. Without a reliable business valuation, you will not be in position to effectively navigate the divorce process. At Campbell Perky Johnson, PLLC, we help business owners navigate family law issues. Here, our Franklin divorce lawyer explains why a business valuation is so important.

Background: Tennessee is an Equitable Distribution State

Under Tennessee law (Tennessee Code § 36-4-121), a divorcing couple’s marital property is split in an equitable manner. Equitable is defined as “fair”—it may or may not be an even split. For business owners, a big part of preparing for a divorce is determining whether a business qualifies as a marital asset or if it is considered separate property. Here are the implications:

● If a business is a marital asset, it is subject to equitable distribution.

● If a business is a separate asset, it remains the sole property of one spouse.

How do you determine if a business counts as a marital asset? Key factors include the date it was formed, the source of funding for the company, each spouse's involvement and contribution to its growth, and whether or not the business gained significant value since the start of the marriage.

You Cannot Manage a Business in a Divorce Unless You Know its Value

Without a precise valuation, it is virtually impossible to make informed decisions regarding the future of the business and its role in the settlement. A business valuation provides a foundation for discussions related to buyouts, sales, or even the continuation of joint ownership post-divorce. An accurate business valuation dispels uncertainties and can prevent prolonged disputes, which are not only costly but can also inflict lasting damage on the business itself. You need to know the true fair market value of your company to navigate a divorce.

Most Common Methods to Value a Business

How do you value a business? It is a question that does not always have a straightforward answer. In many cases, an expert will be brought in to make a reliable assessment of the value of the business. There are several different common business valuation methods, including:

● Asset-Based Approach: The asset-based method calculates a business's value by totaling the fair market value of its assets and subtracting liabilities. It is straightforward and often used for businesses that are largely made up of physical assets.

● Market Approach: The market approach determines a business's value by comparing it to similar businesses that have been sold recently. It can be particularly useful for gauging a business value if a sale is likely in the near future.

● Income Approach: One of the most popular methods, the income approach, values a business based on its ability to generate profit.

Get Help From Our Franklin Divorce Lawyer for Business Owners Today

At Campbell Perky Johnson, PLLC, our Tennessee divorce attorney has extensive experience working with business owners. If you have any questions about business valuations, we are here to help. Call us now or contact us online for your fully confidential initial consultation. With a law office in Franklin, we handle business owner divorces in Nashville and throughout the surrounding region.

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