How will your divorce affect your small business?
The answer depends on several factors. Since Michigan is not a community property state, the court aims for a fair property division—but the court recognizes that “fair” and “equal” aren’t necessarily the same thing.
Was the business something that your or your spouse began after marriage? In that case, absent any written agreements to the contrary, the court will likely conclude that the business belongs to you both, even if only one of you materially participated in its operations.
If you’re the spouse who put all the effort into the business, that may seem unfair. However, the court recognizes that a spouse doesn’t have to directly contribute to the daily business operations to make an indirect contribution to the overall value of the business.
For example, you may have spent long hours tending the restaurant you started, but your spouse may have put in equally long hours taking care of the home and children so that you could devote your time and energy to the restaurant without distractions.
If one of you started the business prior to your marriage, the business itself and many of its assets (like the company’s name, client list and computer equipment) may be considered non-marital property. If, however, the economic value of the business increased during your marriage, that increased economic value may be considered marital property—particularly if you both contributed somehow toward that growth.
What happens if you don’t believe any division of the business is fair?
If you genuinely don’t believe that your spouse deserves any share of the business, there may be ways to convince a court that you are right. A lot will depend on things like the records you kept, how carefully you separated your business and personal accounts and whether the increased value of the business was “passive” (through things like rising property values that increased the value of your rental property in general) or “active” (through things like the introduction of a new product line).
Keep in mind that a business attorney has specific expertise when it comes to complex issues like valuing a business or determining its premarital vs. post-marital value.
In order to get a real idea of what you can do to help the business survive your divorce, consult a business attorney as soon as you think divorce might be a real possibility.
Source: FindLaw, “Managing Marital Property – Do’s and Don’ts,” accessed Feb. 17, 2017
