When your spouse serves you with divorce papers, you may worry about how your impending divorce will affect your small business or partnership interests. You might also wonder whether you have waited too long to protect your business assets by not taking steps to secure your interests before divorce proceedings begin. In these circumstances, you need knowledgeable legal counsel to help you understand your options for protecting your business interests during your divorce.
Understanding Business Assets in Divorce
Michigan divorce law treats business assets like any other assets, such as a home or vehicle. Any business interest or portion of an interest that qualifies as marital property becomes subject to equitable division in divorce. As a result, your soon-to-be-ex-spouse may have a legal right to a portion of your business ownership interests. Whether a business interest qualifies as a marital asset depends on various factors, including:
- Whether you started the business or acquired your interest before or during your marriage
- Where you obtained the capital to start the business or acquire your interest
- Whether you’ve used marital property as collateral for the business’s debts
- The entity and taxation structure for the business, including whether you receive a regular salary or withdraw profits from the business for your income
- The growth in the value of the business during your marriage
- Whether your spouse participated in the operation of the business
Factors Influencing Business Division
Courts will consider various factors when deciding whether to divide a spouse’s business ownership interests in divorce, including:
- Whether the spouses already co-own the business or both hold ownership interests, and whether either spouse has expressed an interest in buying out the other spouse
- The feasibility of dividing a spouse’s ownership interest, including whether the business’s governance documents prohibit or restrict transfers of ownership interests
- The determination of the business valuation in divorce proceedings
- Whether the marital estate has other assets that may offset the business interest during equitable division
Can You Still Protect Your Business if Divorce Proceedings Have Started?
Although proactive planning can best protect your business interests, you still have options available to you once divorce proceedings have started. Depending on your personal and family finances, you may resolve the equitable division of a business interest by agreeing to give your spouse other marital assets of equal value to their interest in your business. Alternatively, you might agree to buy out your spouse if they own a share of the business.
Assessing the Current Situation
As you weigh your legal options for protecting business interests in divorce, you should also get a business valuation to understand the value of the share of your interests your spouse might receive in divorce. A valuation can help determine whether you can compensate your spouse with other assets or buy your spouse out of the business.
Protective Measures to Consider
Here are some proactive measures you can take to protect your business interests in the event of a divorce:
- Signing pre/postnuptial agreements that settle the question of equitable division or leave business interests out of the division
- Including provisions in your business’s governance documents to restrict transfers of interests
- Maintain clear financial separation between your business and your personal/family finances
Contact Our Michigan Divorce Attorneys to Learn More
Worried about how your upcoming divorce will affect your business? Contact Alward Fisher today for a confidential consultation with an experienced Michigan divorce lawyer to learn how we can help you safeguard what you’ve worked so hard to build.
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