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What to know about splitting a business in a divorce

Many Michigan couples raced to divorce before the end of 2018. At the start of 2019, a new law went into effect that limits how much alimony spouses can write off on their taxes.

Now that 2019 is here, there are many additional considerations to bear in mind for couples who want to divorce. The complexity of the process will vary on a litany of factors. The proceedings become complicated if one or both spouses own a business. Individuals who own businesses need to be proactive, which means they should create a prenuptial agreement prior to the marriage to protect business-related assets.

Designate the business as separate property

Before marriage, business owners would be prudent to create a prenup. Although many people associate this document with rich couples, people from any economic background can benefit. In this document, the business owner can state that he or she wishes to keep the business and all assets related to it separate from any marital property the couple acquires over the course of the marriage.

Depending on the size of the business, other shareholders may demand that the owner create a prenup to protect the company’s interests.

Make a postnuptial agreement when starting a business together

Many couples decide to start a business together after marriage. While this can be a lot of fun and highly profitable, complications will arise during property division if the couple ends up divorcing. This becomes complicated because the other spouse has a valid case based on his or her financial contributions and effort put into the business.

While creating the initial business plan, it is a good idea to include provisions for what will happen to the company in the event of divorce. While couples are naturally uncomfortable discussing possibly separating, it is a necessary conversation to have when dealing with a company’s best interests.