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Protecting Your Business from a Divorce

Protecting Your Business from Divorce in Sterling Heights

Michigan divorce attorney provides pertinent advice

If you think you might be heading towards a divorce, you need to understand the implications for your ownership stake in a business. A Michigan divorce court treats a business interest like any other asset that is potentially subject to division between the spouses. Depending on the facts, the court could award your spouse part ownership, which could have an impact on your partners, investors and clients. To shield your business interests during divorce, you need to take certain legal steps ahead of time. At Dawson Family Law, PLLC in Sterling Heights, I have been litigating complex divorces for more than 40 years. I provide trustworthy advice to protect my clients’ business ownership rights.

Is an LLC protected from divorce?

You already know that incorporating your business or setting it up as a limited liability company protects your personal assets from business creditors and other liabilities. But does your company’s legal status protect your ownership stake from asset division during divorce? The fact that you are a corporate shareholder or LLC member is a factor in your favor but it is far from conclusive. Other factors a court might consider are:

  • When you started the company or acquired your ownership interest — If these events occurred before your marriage, you have a stronger case for claiming the business property is separate.
  • Where you got the money to start the company or acquire your interest — If this was done during the marriage, a court would want to know if you used marital funds or your spouse’s money to any extent. If so, you could claim it was a loan, but you need to repay that loan in advance of the divorce.
  • Whether your personal property is collateral for business loans — Small business owners may sign personally for business loans or use home equity loans to obtain business capital, which blurs the line between personal and business property.
  • Whether you paid yourself a regular salary — If you draw a salary from your company that has fair market value, this can demonstrate a clear line between the company and your personal property.

Based on analysis of these factors and others, such as your spouse’s direct or indirect participation in the business, all or part of your ownership stake may be considered marital property that is subject to asset division during divorce.

Perils of a spouse’s participation in the business

Any participation by your spouse in your business can lead the court to conclude that he or she has earned an equity interest. If your spouse works in the business or otherwise plays a role in its operation, make sure you allocate payments to him or her in a business capacity, such as by:

  • Documenting any cash taken from your spouse or your household accounts as loans to the business
  • Paying your spouse market rate for any work as an employee or independent contractor
  • Paying expenses for social entertainment of clients from your company budget, not your household accounts

Clear, accurate record-keeping is essential for documenting a pattern of behavior that establishes your sole ownership.

Sign a prenuptial agreement

For businesses started prior to marriage, you can solidify your case for separate ownership by executing a prenuptial agreement. As part of that agreement, you can stipulate that your business should be treated as separate property in the event of a divorce. If you don’t have a prenup, it’s possible to execute a postnuptial agreement under certain circumstances.

Contact a Sterling Heights family lawyer to protect your business from a Michigan divorce

Dawson Family Law, PLLC helps divorce clients throughout the greater Detroit area protect their business assets. For a free initial consultation to discuss the process and your options, please call 833-671-4445 or contact me online. My office is conveniently located one-half mile south of M-59 (Hall Road) in Sterling Heights.

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Office Location
  • Sterling Heights Office
    43805 Van Dyke Avenue
    Sterling Heights, Michigan 48314
    Phone: 586-731-7400
    Fax: 586-731-6370
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