April 20, 2023

Protecting Your Business in a Divorce in Michigan

Divorce can have a major impact on your business. If you are a business owner, you may even stay in a bad marriage or put off filing for divorce because you worry about what it can do to your business.

This is understandable and a natural fear since divorce can have a major effect on many aspects of your financial life. Your business could be considered a marital asset, and if you are the sole owner, the business is probably going to be awarded to you in the divorce, but at what cost?

There are many ways you can protect your business in a divorce. A prenuptial or postnuptial agreement is a great way to ensure your business stays protected.

Michigan Prenuptial and postnuptial agreements

A prenuptial agreement is effective before marriage, while a postnuptial agreement is effective after you are already married. They are both written agreements stating terms you and your spouse agree to if you divorce. You are both typically legally bound to the terms in the agreements.

You could specify in the agreement that you and your spouse agree that the business is your separate property. This would prevent your business from being included in the list of marital assets that are divided.

A business typically is the highest-valued marital asset in a divorce. If the business is a marital asset and you receive it, you may have to give up most other marital assets to ensure a fair division. Classifying your business as a separate asset could prevent this.

Alternatively, you could agree that any increase in the value of your business during the marriage is considered marital property. Although you will have to split that value with your spouse, the financial impact should not be as damaging.

An agreement could also include terms about how your business will be valued. For example, you could both agree to use a certain appraisal technique.

What if I don’t have a written agreement?

If you do not have a prenuptial or postnuptial agreement, do not worry. There are still things you can do to protect your business.

Detailed recordkeeping is essential when it comes to proving the business is your separate property. Maintain thorough records showing where all of your business capital came from. Any marital funds that were used in any part of the business could potentially convert your business into a marital asset.

Have documents showing that you are the sole owner of the business. It helps to include terms in any business organization documents stating that the business is a separate asset and not subject to transfer in a divorce.

Keep business and personal money separate

Always keep your funds separate from your business funds. Personal funds that are used for something business-related mean the assets are now intermingled and your business is no longer a marital asset. Detailed recordkeeping of all transactions here is vital as well.

Owning and running your own business may be something you dreamed of and now that your dream is a reality, you do not want to lose it because of a divorce. By taking these important steps to protect yourself, you can survive your divorce and come out of it with your business intact and successful.

These are just some basic tips on how to protect yourself. Just as your business is unique, so is every divorce. Working with a divorce attorney experienced with high-asset divorces involving business owners can help you ensure that your business interests are secure after your divorce.