Divorce by Business Owners – Splitting Up Your Marriage and Your Business

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Legal Blog
Monday, 02 May 2011 14:52
Going through a divorce is difficult for any couple. When a couple that owns a business divorces, there are ramifications not only for the marital partnership but the business partnership and its financial well-being. If you and your spouse have decided to end your marriage, this more than likely means that your joint business will be affected. This includes the business's assets, and also the livelihood of your employees.

1. Determining Business Ownership. In Michigan, property acquired during the marriage is considered marital property. What does this mean for a business? If you or your spouse started the business during your marriage, the entire business is considered marital property. This not only includes a business where both spouses are directly involved but also includes a business where one spouse runs the business and the other stays at home and raises the children. In almost all circumstances, the court will conclude that each spouse owns half the business.

If you or your spouse started a business in the years before your marriage, the value of the business during that time is yours alone. However, any increase in the business's value during your marriage is considered joint property and must be valuated in order to be equitably divided.

2. The Division of Your Business. The dissolution of your marriage will, in almost all cases, mean the division of your business. One method of dividing a business is to have one spouse pay the other spouse half the value of the business. The payment can be made with cash or other assets. This could create a cash flow problem if it is not handled appropriately, causing harm to your business and ultimately to your share of the marital property.

In order to determine the fair market value of the business, the business must be assessed and the parties must agree to the valuation. There are practical complications to assessing value. If you or your spouse were working in the business without pay, a replacement may need to be hired while waiting for the division of marital property to be determined. Also, it may be that assets in the business may need to be used for spousal support or to settle division of property.

It may be that you and your spouse can no longer tolerate being married, but are able to work together in your business just fine. In this somewhat rare scenario, your attorney will draft a shareholder's agreement for you and your spouse granting each of you a 50% ownership in the company. This will also include a buyout provision in the event that the business relationship fails and the business ultimately must be divided.

3. Further Complications. If either party contests the assessment, this can drag out the divorce proceedings. Given current economic conditions, it may be that your business will suffer while negotiations continue. Your business may miss opportunities because control is being contested in the divorce proceedings. A company that might want to buy yours could shy away because there is no clear party to negotiate with.

If the parties cannot come to an agreement, the court will step in and make its assessment from the information presented. This can be a long, drawn out process if there is a great deal of animosity between the parties, and it is in your best interest to work with your attorney toward a comprehensive, fair resolution.

4. Protecting Your Rights. A knowledgeable attorney is your greatest asset. The best time to decide how your marital business is to be divided in event of divorce is long before anything goes wrong in your marriage. It may seem calculated, but by having your attorney and your spouse's attorney work through a settlement in the event it is needed, you will save yourself time and heartache later.

If you haven't created such a settlement, it is important to remove acrimony and animosity from the work of dividing your business. Working with your spouse will help you in the end by saving time and money that could go toward your business. Your attorney will be able to negotiate a fair settlement with opposing counsel so that your divorce and division of marital property, including your joint business, goes as smoothly as possible.

Ultimately, a divorce is painful and draining for all involved. By working with each other to divide up your joint business, you and your spouse will be better able to move on with your lives.

 

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