Getting divorced when you have a sole proprietorship

On Behalf of | Mar 10, 2021 | Family Law |

Undergoing a divorce is never an easy process. When you throw a sole proprietorship into the mix, it can complicate the process even more. Understanding how a sole proprietorship is affected by divorce in the state of Tennessee can allow you to prepare for an optimal outcome from your divorce proceedings.

Equitable distribution vs. community property

In dealing with divorce, it’s important to determine whether your state adheres to equitable distribution or community property during the asset division process. In equitable distribution, the property is classified as either marital property or separate property. All marital property is equally distributed between the parties. When it comes to community property, all marital assets are split 50-50. Tennessee falls under equitable distribution laws.

Business before and after marriage

A major determining factor of what will happen to your sole proprietorship depends on when it was started. If a sole proprietorship was started after your marriage, it will be considered marital property and can be split up evenly between you and your partner. However, if you started your sole proprietorship before you got married, it’s considered your property.

While your sole proprietorship may be considered separate from your marital property, it’s not that’s straightforward when it comes to divorce. Rather, assets that were bought by the business after you were married are considered marital property. This is property that can be evenly distributed between you and your former spouse. Also, it’s important to realize that the law does allow your former spouse to be entitled to some of your business if they contributed to its growth via “sweat equity.”

As you start to undergo your divorce, there are many things you need to take into consideration. The future of your sole proprietorship and who will own it is a big one. Your attorney may help you have a better idea of how sole proprietorships are looked upon in divorce court and what you can expect as an outcome of your divorce proceedings.