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Home » Turner Law Offices Blog » Division of Professional Interest in Corporation in Tennessee Divorce

Division of Professional Interest in Corporation in Tennessee Divorce

In Tennessee divorce cases, lawyers are tasked with determining the divisible assets in a professional corporation.  The first step n the process is to determine the individuals interest and then the value of that interest.  Many times a Certified CPA is required to assist in the determination of value for the division of assets. A recent case out of Tennessee Court of Appeals illustrates the complexities of dividing a professional’s ownership in a corporation.

Tennessee division of assets

The husband was a partner in the company. He joined the company as a shareholder and was loaned money from a third-party lender for his buy-in.  This ownership interest funded the husband’s capital account.  The membership documents clearly stated the value of the percentage of ownership in the corporation as being the value of the account.

Despite of the definition of the value of the ownership in the company, the wife had an expert that testified that there should also be an interest in the goodwill value of the company. Goodwill that exists separate from a professional’s personal skills and reputation is divisible upon divorce. There are several steps determine whether goodwill that is subject to division upon divorce attaches to a professional practice.

  1. Goodwill must be determined to exist independently of the personal ability of the professional spouse
  2. If goodwill is found, the court must determine whether that goodwill has a value in which the estate is entitled to share.

While a partnership agreement is only a factor to consider in the present value of the partnership, the questions of whether a business possesses goodwill and if so, what the value of that goodwill consists of, are fact questions for the trier of fact.

The court found that wife’s expert lacked credibility and disregarded his method to find value.  The Tennessee court instead opted for the method of value stated in the membership agreement. So, husband’s account was the value of the loan proceeds less the remaining balance on the note.

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