Tennessee LLC Post-Divorce (Detailed Expert Guide)

Delina Chantel Yasmeh
Published by Delina Chantel Yasmeh | Author
Last updated: June 19, 2024
FACT CHECKED by Lou Viveros, Growth & Transition Advisor
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Recent estimates show that divorce rates in the U.S. have risen by 3.6% from 2021 to 2022, which likely affects businesses in one way or another.

When a married couple that owns a business or an LLC together decides to divorce, generally, their LLC will be treated as part of the marital estate and divided between the spouses according to their respective interests in the separate property.

Drawing on our expertise and knowledge of Tennessee's legal framework, we'll address key considerations such as asset division, business ownership rights, and the potential impact on the LLC's operations.

This article aims to clarify what you can expect while navigating an LLC operation in Tennessee after a divorce.

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.
  • According to a study conducted by the National Federation of Independent Business, approximately 50% of small business owners go through a divorce.
  • 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 [1].

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

A woman read how is LLC property divided in a divorce in Tennessee

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 [2].

Non-marital property, on the other hand, are 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?

Checking files and pointing at document

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.

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 [3].

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 [4]. 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.

According to the Internal Revenue Service (IRS), approximately 95% of married couples submit and file joint tax returns. A postnuptial agreement can include a provision for separate filings after the divorce.

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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:

  1. https://www.forbes.com/sites/forbesfinancecouncil/2022/10/20/the-financial-impact-of-divorce/?sh=53f89b5419e5
  2. https://www.maritallaws.com/states/tennessee/property-division
  3. https://www.nycbar.org/get-legal-help/article/family-law/marital-agreements/prenuptial-agreements/
  4. https://www.investopedia.com/personal-finance/postnuptial-agreements-more-couples-signing-them-are-they-enforceable/

About The Author

Author
Delina Chantel Yasmeh, J.D./Tax LL.M, specializes in Mergers and Acquisitions at Deloitte and PwC, managing billion-dollar transactions. Educated in Accountancy at California State University and holding advanced degrees from Loyola Law School, she is highly skilled in tax law. Delina also dedicates time to pro bono work for women and children.
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Growth & Transition Advisor
LJ Viveros has 40 years of experience in founding and scaling businesses, including a significant sale to Logitech. He has led Market Solutions LLC since 1999, focusing on strategic transitions for global brands. A graduate of Saint Mary’s College in Communications, LJ is also a distinguished Matsushita Executive alumnus.
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