Divorce is never easy, but it can become even more complicated and emotionally draining when a family business is involved. In Michigan, the division of marital assets, including businesses, is governed by the principle of equitable distribution. This means that during the property division process, the court will aim to divide the assets fairly, but not equally, between the spouses (Michigan Compiled Laws section 552.19). A family law attorney can fight for you and help protect your rights during the divorce process.
Is the Family Business Considered Marital Property or Separate Property?
A business could remain separate property if one spouse owned it before marriage and kept it separate from all other finances and contributions, if one spouse acquired it alone through gift or inheritance, or if a valid prenuptial agreement protects it.
A family business will likely be subject to division in a divorce when:
- The business was started or acquired during the marriage
- Both spouses contributed to the business’s growth and success during the marriage through money or labor
- Marital funds were invested in the business
- Marital and business assets were commingled
- The original business owner added the other spouse’s name to the ownership documents.
Any increase in the value of a pre-marital business during the marriage may be marital property, even if the company started as separate property.
Getting a Business Valuation
A business valuation is essential since it provides a clear basis for dividing a family-owned business. Professional appraisers use several methods to determine the company’s fair market value, including market, income, and asset-based approaches. They will then analyze financial statements, market conditions, and the business’s overall health to determine the total value of the business.
Options for Dividing a Family Business in Divorce
There are several options for dividing a family business in a divorce proceeding, including:
- Buyout—This is the most common solution, in which one spouse buys out the other spouse’s interest in the business. It allows one spouse to retain full ownership of the company.
- Co-ownership—The spouses could continue to jointly own and operate the business after the divorce. This is less common and requires a cordial working relationship.
- Selling the business—The couple could sell the business to a third party and split the proceeds. This provides a clean break, but finding a buyer can be a lengthy process.
- Shared Proceeds – One spouse continues to run the business while the other agrees to accept a percentage of future proceeds to satisfy their share of marital assets.
- Transferring to a trust – Control of the business is transferred to an irrevocable trust managed by a trustee to prevent either spouse from selling assets.
- Establishing a buy-sell agreement – A buy-sell contract could allow one spouse to buy out the other’s shares if certain trigger events occur.
The most suitable option will depend on factors like each spouse’s desire and ability to continue operating the business, the company’s profitability and marketability, and the couple’s ability to work together or reach an agreement.
How Our Divorce Lawyers Can Help
At Alward Fisher, we know how difficult divorcing your spouse can be. We also know how much more complicated things can get when a family business is involved. When you hire us to represent you, you can count on our experienced Michigan divorce lawyers to protect your interests and work to find a fair resolution. Call or contact us online for a confidential consultation to discuss your situation with a divorce attorney about dividing family business assets.
This post was originally published in October 2020 and has been updated for accuracy and comprehensiveness in May 2024.
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