What options do spouses have for a family-owned business in a divorce?

| May 28, 2021 | Divorce |

Divorce triggers emotional and financial tribulations. Property division between the parties contributes significantly to the strain on both parties. An often-overlooked asset, the family-owned business requires frank discussion and a mutual understanding of goals and objectives post-divorce. Regardless of the business structure, an agreed-upon process will facilitate one aspect of a process fraught with uncertainty.

Michigan law applies the doctrine of equitable distribution to disperse assets. A fair allocation between the parties rarely results in numerical equivalence, however. Courts often separate assets into categories: marital property and separate property. The spouse’s status at the time of acquisition determines the classification, with exceptions.

Unlike other assets, a business uses different metrics to measure its value. For example, a partnership, LLC, and corporation have different structures, tax obligations, degrees of liability. A specialist can provide an objective analysis and numerical value to the business. Each spouse will have a foundation on which to evaluate their legal and personal interests.

The business may end up with one spouse, both, or neither

After the specialist appraises the business, the spouses will evaluate their respective goals with three general options in mind. One spouse, often the one who runs the business, will buy out the other at the appraised value. The parties can design different strategies depending on the solvency of the bought-out spouse. These include a structured payback or, if applicable, purchase of the departing spouse’s shares.

A second resolution will provide for both spouses to maintain an interest in the business. Although theoretically plausible, residual animus may cloud either party’s judgment or insinuate emotional interests counterproductive to the business.

Third, the couple can sell the business and split the proceeds. While financially beneficial, it may prolong the divorce process.

A family-owned business can complicate a divorce. Cooperation and communication can facilitate the ultimate financial and emotional objectives of both spouses. An attorney familiar with how the tax structure and value of a business may help achieve a future of financial comfort and emotional health.