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What small business owners in Livingston County need to know about divorce

On Behalf of | Aug 19, 2020 | Divorce

After years of hard work, you have built your business into a success. However, your marriage is on the rocks, and divorce looks like a real possibility.

Michigan is an equitable distribution state. That means when a married couple in Michigan divorces, the spouses must split all marital assets reasonably fairly.

Most of the time, a small business is marital property, even if only one spouse started it and worked there. That’s because family law recognizes indirect as well as direct contributions to a business.

If you started your business yourself and worked there every day while your spouse kept the house and was the primary child-raiser, the court could rule that your spouse made your work possible. Therefore, both you and your spouse can claim shares of the business in divorce.

6 possible strategies for saving your business from breakup in divorce

This could mean you would have to buy out your spouse’s share to preserve your business. Fortunately, there are things you can do as an entrepreneur to minimize the risk to your business.

Here are a few examples:

  1. A prenuptial or postnuptial agreement can make it clear that your business would remain in your name.
  2. Pay yourself a good salary. Many small business owners pay themselves modestly to invest more back into the company. If you do this, your spouse could claim a larger share of the value of the business during divorce.
  3. Avoid hiring your spouse. If they already work for you, try to ease them out. The more significant the role your spouse had in the company, the better their case that they contributed to its success.
  4. Get a fair valuation of the business. You need to know what the business is truly worth before you can negotiate a just settlement.
  5. You can raise capital to pay off your spouse by selling shares of the business to an employee or outside investors.
  6. Consider offering to pay your spouse’s share in monthly payments instead of a lump sum. This can be easier on the business’ budget.

The most important thing you can do to protect your business is to hire a divorce attorney with experience representing entrepreneurs. Every case is different, and your best strategy for the division of assets depends on your individual needs and what is best for your business.