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What issues typically arise when dividing a business in divorce?

In order to increase the chances that you will get to keep your business in a divorce, you might decide to use mediation or collaborative divorce to avoid the contentious atmosphere a Michigan courtroom often creates. Even so, that does not mean that you will not run into challenges along the way.

If you and your attorney devise a strategy to combat some of these challenges before sitting down to negotiate, it could make the process go more smoothly.

What are some of the challenges I could encounter?

The challenges often depend on how you structure the business. If you and your spouse work together, the negotiations will take a different direction than if you run the business alone.

If you both work in the business, you need to consider the following:

  1. Does your spouse want to continue working in the business after the divorce? If so, a new agreement and working arrangement might be in order.
  2. Does your spouse want out of the business? If so, an exchange of other marital assets might be possible to compensate for the marital portion of the business. If not, will a loan be necessary, or will monthly or quarterly payments from the business suffice?

If you work the business alone, you need to consider the following:

  1. Even if you owned the business prior to the marriage, any increase in its value during the marriage more than likely became part of the marital estate. Therefore, some portion of the business belongs to your spouse.
  2. Your spouse might elect to take a portion of the business or accept other marital assets in exchange for leaving the business alone.

In either scenario, the business will need to be valued and the marital portion of it determined. In an amicable setting, you and your spouse might pick the same third party to conduct the evaluation. However, you are both free to choose separate evaluators.

Am I free to operate and improve the business during the divorce?

If you intend to retain the business after the divorce, you should make business decisions that will improve its chances at success. True, it might increase the value of the business during the divorce process, but the future of the business is often more important than any short-term issue that could arise.

Can we just close or sell the business?

Yes. You and your spouse are free to decide that closing or selling the business is the best financial option. You will still need to do a business valuation and ensure that the closure or sale conforms with current laws pertaining to your particular business.

Is court still an option if negotiations fail?

Going to court remains an option at any point if negotiations break down. You and your attorney should be ready to go to court even if you and your spouse agree to mediation or collaborative divorce, especially since this is not an exhaustive list of issues you could face. Better to be prepared and make sure the business survives than to put all your hopes into negotiating a settlement.

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