Almost everything and everyone is divided in divorce: from friends and in-laws to the house and furniture. When a divorcing couple owns a business, it’s almost a certainty that the business is about to undergo major changes, too.
Michigan divorce law is built upon the foundation of marital property. The concept is simple: property owned before marriage is considered separate property, while property acquired during marriage is marital property.
When it comes to a business, it doesn’t matter if both spouses managed the business or only one did while the other stayed home with the kids. The stay-at-home parent is more often than not considered owner of half the business if the venture was started during the marriage.
Most people contemplate a buyout when trying to solve the problem of switching a business from joint ownership to a sole proprietorship. In a buyout, one spouse pays the other spouse half the value of the business in cash or other assets.
The solution can be hard on the business, however, creating a cash-flow crisis if not handled properly.
It can also be difficult to get the divorcing parties to agree on the fair market value of the business. What if the company isn’t liquid, but it has assets that might be extremely valuable to a larger firm looking to make an acquisition? It’s the kind of complex circumstances a family court is obligated to unravel in the absence of an agreement between the divorcing parties.
More Potential Problems
Failing to reach an agreement on a buyout comes with its own set of complications. Because some contested divorces can take years to settle completely, a business can suffer in the interim.
Owners may miss out on opportunities for lucrative business offers because control of the firm is contested in divorce proceedings.
A business also may have to deal with new expenses directly related to the divorce: a husband or wife who worked without salary is no longer a part of the business, meaning the company has to hire a replacement.
The business owner may also have to commit a portion of the business income to spousal support, taking capital away from what might have been expansion or improvement.
In many situations, business owners put personal differences aside to craft a fair settlement that ensures the survival of the company and the financial well-being of both parties. Together with divorce attorneys, they create a finely tuned solution that a court simply doesn’t have the knowledge or resources to generate on its own.
Business owners who face divorce do well to get out in front of coming difficulties by having a frank discussion of their circumstances with a divorce lawyer who can begin the process of evaluating assets and planning property division.