What Happens to My Business if I Get Divorced?

Navigating Divorce as a Business Owner in Michigan

If you’re a business owner going through a divorce in Michigan, you may wonder what might happen to the business. The answer isn’t simple because companies can be considered marital property in a divorce. Whether your spouse helped run the business or had no involvement, Michigan law will consider how the business was started, how it grew, and what role the marriage played in its development.

What Is an Equitable Distribution State?

Michigan courts follow the principle of equitable distribution. That means marital property is not necessarily divided 50/50, but instead in a way that the court considers fair. Remember that fair does not always mean equal. The court looks at several factors to decide who gets what, such as the length of the marriage, each spouse’s financial and non-financial contributions, the earning capacity of each party, age and health, needs and debts, and how and when the property was acquired.

Is Your Business Marital or Separate Property?

This is the first question the court will ask. Not all businesses are automatically part of the marital estate. In Michigan, property is usually classified in two ways. Separate property is anything you owned before the marriage, inherited during the marriage, or received as a gift that was kept separate. Marital property is anything acquired or appreciated during the marriage, especially if your spouse contributed to its growth.

If you started your business before marriage and kept it separate without shared funds, spouse involvement, or commingled assets, the court may consider it separate property. But if the business grew significantly during the marriage, or if marital funds were used to keep it running or expand it, then a portion of it could be considered marital.

Did Your Spouse Contribute to the Business?

Even if your spouse didn’t officially work for your company, they may have contributed in ways that courts value, such as doing bookkeeping from home, helping with networking or marketing, or even supporting you emotionally while you took financial risks. Courts are especially likely to recognize that kind of indirect contribution in longer marriages. If your spouse worked in the business, whether paid or unpaid, there’s a stronger case for them to receive a share of the business value.

How Is a Business Valued During Divorce?

Before the court can divide a business, it needs to know its worth. In Michigan, a business valuation is completed by a professional, often a forensic accountant or valuation expert. The valuation will examine assets, liabilities, income statements, tax returns, market competition, growth potential, and goodwill, especially if your reputation drives business.

Valuation can be complex and contentious. One spouse might argue for a lower value to protect the business, while the other might seek a higher value to receive a bigger share. Sometimes, each side hires an expert, and a judge must weigh the competing valuations.

What Can Happen to the Business?

There are a few possible outcomes for the business in a Michigan divorce.

You Buy Out Your Spouse’s Interest

This is the most common solution. If the business, or a portion of it, is deemed marital property, you may pay your spouse a lump sum or structured payments over time in exchange for their share. This lets you keep complete control and ownership.

Sell the Business and Split the Proceeds

In some cases, particularly when neither spouse wants to, or can afford to keep the business, selling it might be the only viable option. This is usually a last resort, especially for companies with long-term potential or personal investment.

Co-Ownership-Rare but Possible

Ex-spouses may remain business partners after a divorce, especially if the relationship remains cordial and both want to stay involved. But this requires high trust and cooperation, which isn’t always present post-divorce.

Can a Prenuptial or Postnuptial Agreement Help?

If you have a prenuptial or postnuptial agreement that specifically addresses your business, it can help define it as separate property and shield it from division. Michigan courts review these documents for fairness. If you don’t have one, a postnuptial agreement might be an option, though both parties must voluntarily agree.

Tips to Protect Your Business in the Future

Whether you are going through a divorce or taking precautions, there are some ways to safeguard your business.

Keep Personal and Business Finances Separate

Avoid using marital funds to finance the business if you want to maintain its status as separate property.

Pay Yourself a Fair Salary

Underpaying yourself and letting profits accumulate in the business can be risky. Courts may view those retained earnings as part of the marital estate.

Limit Spouse’s Involvement

If your spouse is heavily involved, it strengthens their claim to a share. Formalize their role with compensation or a clear contract.

Consider a Shareholder or Operating Agreement

If you co-own the business with others, an agreement can prevent a spouse from gaining control or becoming an unwanted business partner during a divorce.

Talk to a Professional Early

Whether you’re just starting your business, thinking about marriage, or facing the possibility of divorce, getting professional legal and financial guidance now can protect your business for the long term. In Michigan, the law allows for flexibility in dividing property, which means outcomes can be unpredictable. That’s why consulting with a family law attorney who understands business and divorce law is essential. 

Protect Your Business During Divorce

Your business is more than an asset; it’s your passion, livelihood, and future. Don’t let divorce jeopardize what you’ve built. Bailey & Terranova, P.C. helps business owners navigate the complexities of divorce in Michigan. Whether you’re dealing with business valuation, asset division, or buyouts, we’ll protect your rights and work to keep your business intact. Contact us at 517-236-7187 to request a consultation.