It is a nightmare no business owner wants to experience. The small business the owner has spent years building up is suddenly sold off to pay for a divorce settlement, or the now former spouse has taken control of it. The problem for Michigan business owners is that if a spouse is co-mingled too much with the business, that spouse may end up with a say in the company’s ultimate fate in a possible divorce. There are ways, however, for an owner to help prevent losing a business and its assets should a divorce occur.
For one thing, if your spouse takes an active role in running the business, the spouse can make a claim that he or she helped build the company and is thus entitled to profits, benefits or a piece of ownership. An article on Entrepreneur.com recommends that the spouse be eased out of the company as soon as it is feasible to do so. The longer the spouse stays with the business, the greater the claim the spouse can make on the company’s productivity.
Still, even if your spouse is no longer directly involved in the company, you do not want too much of your personal income to go into the business. Diverting large amounts of the household cash into the business could grant your spouse a stake in the company if you intended for both you and your spouse to benefit from the business later on, such as selling it off and reaping the profits together. Some company owners deliberately pay themselves a smaller salary for this reason. However, it is better to pay yourself a regular salary to prevent the appearance of your household income being too intermingled with your business.
If a company is considered to be marital property, the law considers it to be co-owned by both spouses fifty-fifty. In the event of a divorce, a court will likely split up the property between the two spouses. However, Inc.com points out that only nine states have martial property laws on the books. Michigan is not one of them, but is instead a community property state where other factors, such as the spouse’s role in building the business, will come into play. So a company will not automatically be considered co-owned by an owner’s spouse in the state of Michigan. This does not mean, however, that a spouse cannot be entitled to some of the company’s assets if the spouse had a substantial role in the company’s operations.