Facts: Husband was an independent contractor who sold credit card processing services to businesses. He had about 250 client accounts across five states. He received upfront commissions for signing new clients and residual commissions when existing clients processed credit card transactions.
The residual commissions were based on a percentage of each client’s monthly credit card fees. Husband described the income as “somewhat passive,” but he said he handled three to five client inquiries each day about equipment, fees, bank account changes, or other issues. He admitted he could stop signing new clients and still receive residual commissions so long as existing accounts remained active.
Husband routed the commissions through Choice Pool Care, LLC, a limited liability company he already owned (and acquired during the marriage) to maximize business tax deductions. The credit card processing company issued 1099s to the LLC. Husband filed business tax returns showing business income from Choice Pool Care, LLC, including $170,788 in 2022. He deducted expenses for depreciation, auto, meals, travel, utilities, and other items. He also paid Tennessee franchise and excise taxes on the LLC’s earnings.
Despite those filings, Husband insisted, “This is not a business.” He said he merely had a sales job. He claimed the LLC was only a pass-through for his personal income and had no business assets, employees, or goodwill to divide in the divorce.
Wife disagreed. She argued Choice Pool Care, LLC was a valuable marital business asset. She relied on Husband’s tax returns, 1099s, and over $40,000 in business deductions to show Husband treated it as a business for tax purposes.
Wife said she had been cut off financially and could not afford a valuation expert. She estimated the business was worth $1.8 million by averaging its last three years of income and projecting 10 years of residual commissions. Husband offered no proof of valuation because he maintained there was no business to value.
Shortly before trial, Husband accepted a lump-sum payment of $87,500 in exchange for selling back to the credit card processing company one-third of his residual commission stream.
The trial court rejected Husband’s claim that he merely had a job. It found Husband was “not an employee of any company or business but rather . . . a business owner.” It classified Choice Pool Care, LLC as marital property and awarded Wife a 20% share of the business, including any similar future credit card processing business and associated residual commissions, noting her indirect contributions as a stay-at-home parent enabled the business’s growth.
But the trial court did not determine the business’s value before awarding Wife 20% of it.
Husband appealed, arguing the trial court improperly converted his personal earning capacity and future commissions into marital property. He claimed the LLC was merely a tax-reporting convenience with no independent value, no transferable assets, and no goodwill. He argued that awarding Wife a share of future residual commissions improperly divided his future income.
On Appeal: The Court of Appeals affirmed the trial court’s classification of Husband’s ownership interest in the LLC as marital property, but it vacated the division of that asset and remanded the case for the trial court to value the LLC before equitably dividing the marital estate.
The Court of Appeals began with the familiar four-step process for dividing marital property: identify the property interests, classify them as marital or separate, value the marital property, and equitably divide it.
Tennessee law defines marital property to include all real and personal property, tangible and intangible, acquired by either or both spouses during the marriage and owned by either or both spouses as of the date the divorce complaint is filed. A membership interest in an LLC is personal property. If acquired during the marriage, it is presumptively marital property unless proven otherwise.
The Court found it undisputed that Husband acquired his interest in Choice Pool Care, LLC during the marriage. Husband did not argue that the LLC interest was separate property. His position was that it had no value.
Classification is only one step. The trial court also had to value the marital asset before dividing it.
The Court held the trial court erred by awarding Wife 20% of the business without first determining the business’s value. The Court said the trial court “skipped the middle step in the process, valuation of the asset, prior to distribution.”
Because no reliable valuation was introduced at trial, the Court vacated the 20% award and remanded for the trial court to value the LLC and then equitably divide the marital estate. The Court authorized the trial court to hear additional evidence if needed.
The Court also rejected Husband’s argument that Wife had been awarded a share of his future earnings forever. It interpreted the trial court’s order as awarding Wife a share of the business asset, including the existing accounts and related residual commission stream, not a never-ending share of Husband’s future labor.
Because the marital estate had to be redivided after the LLC was valued, the Court vacated the child support and alimony awards for reconsideration after the property division is completed.
The Court of Appeals affirmed the trial court’s classification of the LLC interest as marital property, but vacated and remanded the division of that asset, child support, and alimony.
K.O.’s Comment: If a spouse runs income through an LLC, files business tax returns, claims business deductions, pays business taxes, and receives 1099 income through the entity, it will be hard to argue later that “there is no business” when divorce arrives.
Husband’s better argument was not classification. It was valuation. A business can be marital property and still have little value. But saying “there is no business” while the tax returns say otherwise invites trouble.
If a business interest exists, value it. Do not ignore it. Do not assume the court will accept “zero” without proof. And do not let the other spouse’s speculative valuation be the only number in evidence.
Source: Rasmussen v. Rasmussen (Tennessee Court of Appeals, Western Section, June 22, 2026).
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