Divorce is difficult. Those going through a divorce will need to negotiate the division of their property while balancing the emotional letdown that comes with the end of a marriage. This is never an easy process. Add in the complexity and demands that come with business ownership and an already difficult process can become overwhelming.
Thankfully, there are steps you can take to protect your business while you go through the divorce process. The following will provide tangible steps you can take before and during the divorce to help mitigate the impact on your business.
Learn how the law will treat your business
State law guides the divorce process, so the answer to how divorce impacts your business will depend on the location of the divorce. In Michigan, the courts use equitable distribution to divide assets during divorce. This means the court aims to divide marital property fairly, though not necessarily equally.
When making its determination, one of the first questions it will ask is whether the property is marital or separate. Separate property typically includes assets owned before marriage or acquired through inheritance or gift. It is important to note that even if you began the business prior to the marriage or received it through an inheritance, the courts may still consider the asset as marital property. This is especially true if assets tied to business operations were commingled with other marital property, such as funds in joint accounts.
The next step is to determine the valuation of the business. This will provide an idea of the business’ worth and will play an important role in the negotiation process during the division of assets portion of the divorce.
Implement strategies to protect your business
Proactive measures can help to protect the business in the event of a divorce. One example is use of a prenuptial or postnuptial agreement. These are contracts that can govern the division of assets during divorce. You can tailor these agreements to address business interests. The difference between these two agreements is that a couple enters a prenuptial agreement prior to the marriage and a postnuptial agreement during the marriage.
Shareholder or partnership agreements within the business itself can also offer protection. Clauses that address divorce scenarios, such as buy-sell agreements, help to protect business interests.
It is also important to use the power of negotiation to your advantage. Use the business valuation to consider offering an alternative asset in exchange for retaining full ownership of the business. Common examples could include the family home, vacation property, or other piece of real estate.
Tips to manage business operations during divorce
As noted above divorce is more than just a legal proceeding; it is the end of a personal relationship. This can impact your mental health, and you may find yourself distracted, frustrated, or otherwise unable to focus on work obligations. The following tips can help to better ensure business operations continue with minimal impact while you navigate your divorce:
- Delegate responsibilities: Rely on trusted employees or partners to manage day-to-day operations, allowing you to focus on personal matters.
- Communicate with stakeholders: In certain situations, it can help to keep open lines of communication with employees and partners to maintain trust and stability.
By managing operations effectively, you can minimize disruptions and maintain business continuity.
Divorce presents unique challenges for business owners in Michigan. By understanding the legal landscape and implementing protective strategies, you can safeguard your business interests. With the right approach, you can finalize your divorce in a way that keeps your business intact and ready for future success.