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Dividing a small business in divorce

On Behalf of | Oct 21, 2020 | Property division |

When a couple decides to end their marriage, they must list all their assets and debts, and divide all their marital property in a way that meets the guidelines under state law. The division of property is often the most time-consuming and technically difficult part of the divorce process, and it can be especially tricky in cases where the couple owns or co-owns a business.

Michigan law follows an equitable distribution model for property division in divorce. This means that in divorce, the couple must first divide separate property from marital property, and then divide the marital property in a way that meets state guidelines of fairness.

Dividing ownership in a business

When one of the assets in the marital property is a small business, the divorcing couple must find a way to divide ownership in the business. Some divorcing business owners do this by having one spouse buy out the other’s share. Others sell the business and split the proceeds. In some cases, the ex-spouses remain as co-owners of the business.

Each of these solutions has its advantages and disadvantages. Divorcing business owners should consult with attorneys who can help resolve their issues both in family law and business.

When a business gains in value during a marriage

Generally speaking, assets one spouse owned before the marriage are considered separate property, and do not have to be divided in divorce. So, in a case where one spouse owned or co-owned a business before the marriage, it seems possible that the business would be considered separate property, and would escape the property division. However, the value of the business may have changed over the duration of the marriage. If it grew in value, this added value may be considered a marital asset.

These cases can be highly complicated. Divorce attorneys often call in experts to analyze the value of the business. Once the parties have a value, they negotiate terms for how to divide it.