Tennessee LLC Post-Divorce (Detailed Expert Guide)
When a Tennessee LLC is jointly owned by spouses, divorce can threaten everything you've built — from ownership rights to day-to-day operations.
Over 9 years of advising small business owners through divorce-related restructuring, I've reviewed dozens of cases where early missteps proved costly.
This guide covers how Tennessee divides LLC assets, what "equitable" actually means in practice, and the key steps to protect your ownership stake before and during divorce proceedings.
Quick Summary
- In Tennessee, when a married couple with an LLC divorce, the LLC is treated as part of the marital estate and divided according to their interests in separation property.
- You can protect your LLC ownership from divorce by setting it up as marital or separation property, having a buy-sell agreement, and not commingling assets.
- A 2024 survey by Clarify Capital found that 57% of business owners said their company took a financial hit during divorce, and nearly 1 in 20 were forced to close their doors entirely [1].
- Going through divorce procedures made me realize the importance of meticulously evaluating and organizing financial details early on to navigate the complex legal landscape of property divisions specific to my state.
How Is Marital Property Divided in Tennessee during a Divorce?
In Tennessee, marital property is divided equitably between the parties during a divorce. This does not mean that each party will receive an equal share. Instead, the court will consider several factors to reach a fair decision.
These factors include the length of the marriage, each party's income, marital misconduct, whether one party supported the other, and any marital fault.
There is no formula that the court must follow in deciding marital property division. Often, the critical areas of division, as reviewed by Forbes, include real estate, financial assets, individual properties, debt, and tax implications [2].
Generally, the separate property division will depend on the unique circumstances of each case.
Suppose the parties can reach an agreement concerning separation property division between themselves. In that case, their agreement can be presented to the court and will usually be approved as long as it is fair.
“To save a business against your own self, it is important to learn what situations, plans, or decisions lead to business failure and why.”
- Danya Shafkeh, Corporate Attorney & Writer of Venture Smarter
Married Vs Non-Marital LLC Status
One of the most important decisions you'll make when setting up your LLC is whether it will be marital or non-marital. This decision determines how separate property the LLC obtains will be treated in the event of a divorce.
Generally, marital property is divided evenly between spouses in divorce proceedings.
According to Tennessee Marital Laws, if the LLC is marital, any separate property acquired by the limited liability company will be considered marital property divided evenly between spouses [3].
Non-marital property, on the other hand, is not subject to the same rules. Separate property acquired by a non-marital LLC is considered individual property and will not be divided between spouses in a divorce.
In any case, it's essential to understand the implications of choosing marital or non-marital status when setting up your limited liability company as a couple.
How Can I Protect My LLC Ownership from Divorce?
You can protect your LLC ownership from divorce by setting up the LLC as a marital or separate property entity.
Here are some additional steps you can take to protect yourself:
1. Ensure the LLC is set up as a marital or separate property entity
2. Ensure that marital or individual assets are not commingled
3. Make sure you have an agreement for marital support in case of divorce
4. Make sure to have a buy-sell agreement in place
5. Hold marital and non-marital property separate
6. Don't commingle marital and personal funds
7. Protect your social security benefits
Taking these steps can help protect your LLC ownership during a divorce. However, remember that every situation is different, and you should always consult with a family law attorney to get specific advice since you have an attorney-client relationship.
How an Operating Agreement Can Shield My LLC During Divorce?
Most Tennessee LLC owners focus on prenuptial agreements as their first line of defense — but the operating agreement does critical work when divorce actually hits.
While Tennessee courts can award a spouse the entirety of the other member's interest (as confirmed in Barton v. Barton, 2020), they cannot transfer underlying LLC assets directly or place liens on LLC property [6].
A well-drafted operating agreement under Tennessee Code § 48-249-203 should include a right of first refusal clause and a clear valuation method, giving remaining members the first opportunity to buy out a court-awarded interest before an ex-spouse steps into an active ownership role [7].
Financial Arrangements In Marriage
According to The New York City Bar Legal Referral Service, a prenuptial agreement is a contract made by two individuals before marriage, where the rights and obligations of each individual about certain business assets are laid out [4].
In divorce cases, these agreements state which spouse will gain what business assets as part of the settlement.
As reviewed by Investopedia, postnuptial agreements are similar to prenuptial agreements but are made after marriage [5]. They can be used to modify or add to the rights and obligations in a prenuptial agreement or address assets not covered in the original agreement.
Both prenuptial and postnuptial agreements can benefit couples who own a business together. In the event of a divorce, a prenuptial or postnuptial agreement can ensure that the company will have an equitable division of resources between spouses.
A postnuptial agreement can include a provision for separate filings after the divorce.
Related Articles:
- How to Dissolve a Tennessee LLC
- How Will My Divorce Impact my LLC
- How Much Does it Cost to Start an LLC in Tennessee
- How Long Does It Take To Form an LLC in Tennessee
FAQs
Who Keeps the Business in a Divorce in Tennessee?
The person who keeps the business in a divorce in Tennessee depends on prenuptial agreements, the source of funds used to establish the company, and its contributions during the marriage. One spouse can purchase the other's interest to avoid potential issues with the division of marital property.
Is Tennessee a 50/50 State for Divorce?
Tennessee is not a 50/50 state for divorce. Instead, the state follows an equitable distribution approach. Marital assets and debts are divided fairly but not necessarily equally. The division is based on various factors determined by the court.
Who Will Divide Your LLC Property in Tennessee’s Divorce Law?
In Tennessee's divorce law, the court will divide the marital property equitably between the spouses. Equitable distribution considers various factors, such as spouses' contributions and economic circumstances, to determine a fair property division.
References:
- https://fortune.com/well/2024/02/08/business-owners-divorce-financial-strain/
- https://www.forbes.com/sites/forbesfinancecouncil/2022/10/20/the-financial-impact-of-divorce/?sh=53f89b5419e5
- https://www.maritallaws.com/states/tennessee/property-division
- https://www.nycbar.org/get-legal-help/article/family-law/marital-agreements/prenuptial-agreements/
- https://www.investopedia.com/personal-finance/postnuptial-agreements-more-couples-signing-them-are-they-enforceable/
- https://www.tncourts.gov/courts/court-appeals/opinions/2020/11/10/eric-wayne-barton-v-mechelle-schlomer-barton
- https://law.justia.com/codes/tennessee/title-48/limited-liability-companies/chapter-249/part-2/section-48-249-203/
