What is the correct way to setup multiple logically organized sub folders in a terraform repo?

Currently I am working on a infrastructure in azure that comprises of the following:

• resource group
• application gateway
• app service
• etc

everything I have is in one single main.tf file which I know was a mistake however I wanted to start from there. I am currently trying to move each section into its own sub folder in my repo. Which would look something like this:

terraform-repo/
├── applicationGateway/
│   ├── main.tf
│   ├── vars.tf
├── appService/
│   ├── main.tf
│   └── vars.tf
├── main.tf
└── vars.tfvars

However when I create this while trying to move over from the single file structure I get issues with my remote state where it wants to delete anything that isn't a part of the currently worked on sub folder. For example if I wanted to run terraform apply applicationGateway I will get the following:

  # azurerm_virtual_network.prd_vn will be destroyed

Plan: 0 to add, 2 to change, 9 to destroy.

What is the correct way to setup multiple logically organized sub folders in a terraform repo? Or do I have to destroy my current environment to get it to be setup like this ?