The unfortunate effects of divorce can be felt by everyone, especially when one of the spouses owns a privately held Michigan business.
The common law in Michigan is that “marital property” constitutes all property and interests one acquires subsequent to the date of marriage, unless the couple has executed a pre-nuptial agreement leaving one’s specific assets out of the marital estate. This generally includes all business interests or ownership interests one has acquired, as well as the appreciated value of all said interests while married. As a result, business owners need to have a plan to secure or purchase back those interests in the event any of the owners experience a divorce.
Generally, buy-sell or operating agreements will include language that indicates that upon divorce, the other owners or the company/corporation will have the right to purchase back those business interests. Unfortunately, many businesses don’t have these contingency plans in place, and if they do, many don’t allow the business owner to come back into the company after the divorce is final. As a result, it might make sense to draft language that allows the divorced or divorcing owner to buy-back their interests after the divorce settlement at the fair market value. This approach not only prevents penalizing the owner for being subject to a bad marriage, but it also protects the longevity of the company, assuming the owner was pivotal to the business’ success.
Another issue in the event of divorce deals with representation by the business attorney. It’s always important for the lawyer to represent the business – not the owners individually. In the event of divorce or separation, for whatever reason, the lawyer will not have a conflict of interest if they represented the company. If they represented either spouse (both of which jointly owned the company) previously or represented the interests of one spouse without supporting the needs of the other, then they may have to remove themselves from future representation in the event there is a divorce.
These are just a few of the key “sticky” issues when representing businesses that are owned by spouses or by individuals that have spouses. Once again, a little forethought and planning can go a long way to mitigate headaches and legal expenses in the event of a divorce.