One of the most contentious issues in a divorce can be the division of marital assets — those deemed to be jointly owned by the spouses. If either spouse owns a share of a business, that share may be considered a marital asset that is subject to division. However, determining the identity and worth of a business ownership stake can be particularly difficult.
Michigan’s equitable distribution law presumes that any asset acquired by either spouse during the marriage is marital property, except for an inheritance or gift to one spouse. Assets owned by one spouse prior to the marriage — including business holdings — usually are considered separate property but may become marital, in whole or in part, in certain circumstances.
Businesses typically appreciate in value and profitability over time, and thus the business-owning spouse’s equity in the enterprise may have grown during the marriage, in addition to any wages or dividends that spouse was paid. The non-owner spouse has a claim on that equity as a marital asset, based on the extent to which he or she contributed to the success of the business. This contribution may consist of having actually worked for the business or having assumed homemaking and parenting duties that left the owner spouse free to carry on business activity.
Other factors could lead a judge to decide that all or at least a portion of the business has become a marital asset. The owner spouse may have used a home equity line of credit or jointly owned cash to operate or expand the business. That spouse also could have refrained from taking a full salary, leaving assets in the company that could have gone to the marital household. In the worst-case scenario, the owner spouse may have used the business to hide assets, such as by claiming a downturn in revenue while moving money to secret accounts.
In the case of a family-owned business in which both spouses hold shares, one of them will typically buy out the other to keep the enterprise operating. That spouse will have to make a lump sum payment, agree to share profits or make another form of regular payments for an agreed-upon period of time. Alternatively, the owner spouse could offer to give up another asset — like a vacation home or share in the marital home — in consideration for the other spouse giving up his or her share of the business.
Regardless of the ownership arrangement, the most critical aspect of dividing business assets is a thorough appraisal. This may require the assistance of a forensic accountant or business analyst to determine fair market value, which is necessary to an accurate assessment of each spouse’s share.
At Dawson Family Law, PLLC in Sterling Heights, Michigan, I utilize more than 40 years of experience in family law to help divorcing spouses hold onto the property that is most important to them. Call my office at 833-671-4445 or contact me online to schedule a free initial consultation.