There are more than 870,000 small businesses here in Michigan. All of these businesses tallied by the Small Business Administration were started by somebody with an entrepreneurial drive and a dream. Yet a divorce can put a small business at risk.
Without any protections in place, a business – or pieces of it – may be subject to property division during a divorce. By planning ahead, however, you can help ensure your company remains untouched by what is otherwise a personal, private development.
Prenuptial agreements for business owners
Prenuptial agreements were, for a long time, seen as taboo. That has changed in recent years, and they are generally widely accepted. This is a boon for business owners.
Some business founders believe a business created before a marriage is automatically separate property. That is not necessarily true. In some cases, any increase in the business’ value during the marriage could be considered marital property and, therefore, subject to property division. In addition, if marital funds were put into the business, this can result in all or part of the operation being treated as marital property.
It is possible to create a prenuptial agreement that specifically carves out stipulations for business interests in the event of a divorce. Generally, this involves declaring the business as separate property, and provides guidance on precisely what will be done with the business (and any directly related interests) should a divorce occur.
What if I don’t have a prenup in place?
For business owners without a prenuptial agreement, they might explore a postnuptial agreement. However, for a postnuptial agreement to be valid, legal criteria must be met. Historically, Michigan’s courts have made it difficult.
Without any type of agreement in place, a business owner going through divorce simply may need to take steps during property division discussions to prioritize the business’ interests. While not necessarily ideal, the time and effort can be worth it if it means moving forward with no restrictions on your business’ operations.