Marital Property Division: Valuing Spouses’ Unequal Shares in a Business

When couples have limited shared assets, minimal property, and independent finances, it can be easy to agree on a fair distribution if they divorce. Dividing interests gets more complicated – and often more contentious – as asset values increase. If the parties cannot reach an agreement, a judge will make the determination for them.

Michigan law requires a court presiding over a divorce to fairly divide property that the couple acquires during their marriage. Although “fairly” often means “equally,” that simple solution is not always equitable. One example might be spouses with unequal shares in a joint business.

Dividing Marital Property

To determine an equitable settlement over contested property, the circuit court judge hears testimony, considers evidence, and makes findings of fact and dispositional rulings. When calculating how to divide property, a court considers:

• Duration of the marriage.
• Contributions of the parties to the marital estate.
• Age of the parties.
• Health of the parties.
• Life status of the parties.
• Necessities and circumstances of the parties.
• Earning abilities of the parties.
• Past relations and conduct of the parties.
• General principles of equity.

Other factors may also affect the division of marital assets, such as whether one spouse had to forgo career opportunities, educational opportunities, or earning potential to support the other spouse and the marriage. The cause of the breakdown (e.g., adultery, cruelty, abuse, etc.) and the interests of any relevant third parties (including children) can also be important considerations. These relevant factors vary from case to case, depending on the facts and circumstances.

Valuing a Business as a Marital Asset

A business that a couple owns jointly would almost certainly be a marital asset. As the Michigan Supreme Court made clear, judges will not require divorcing spouses to continue running a business together: “Every divorce case must be evaluated on its own merits. However, it would be a rare divorcing couple who would benefit from a judgment that requires them to maintain an ongoing business relationship.”

Dividing the business between spouses requires a complete valuation of the operation. If one spouse owned the company before the marriage, the court might consider only the increase in value during the marriage to be marital property. A couple who owns unequal shares in a business would be one fact the court considers when determining how much of its value to award each spouse (i.e., a majority 51 percent ownership can be far more valuable than 51 percent).

Other factors include how much labor each spouse contributed directly to the business and how much support each spouse contributed indirectly to its success. If one spouse invested a significantly higher amount of money and both worked together equally to run the business, the division of assets may weigh towards the more invested spouse. However, if the less financially invested spouse dedicated more time and effort to the business, the court may balance the division of assets accordingly.

A court may also look to general principles of equity when determining what is fair. If equally separating a company’s assets would mean neither spouse could afford to continue to operate the business, a court might find another more equitable solution. Expert testimony about the value of a business’s assets and evidence showing each spouse’s contributions (both financial and personal) to the enterprise are critical to divide business assets fairly. Each situation is unique, and Michigan courts generally consider big-picture factors rather than making simple determinations based on the monetary value of each spouse’s investment.

Business Interests as Separate Property

In certain circumstances, the court considers assets to be the “separate property” of each spouse. For this to be the case, the property generally must have been obtained before the marriage and not intermingled with marital assets. Also, the spouse claiming separate ownership cannot have meaningfully interacted with the asset to nurture its growth during the marriage. Spouses who each owned separate investment interests in an outside, third-party business when they married and who did not interact with the enterprise or contribute to its growth may argue those interests remain their separate property.

For example, each spouse owned shares of Microsoft stock when they married, and they have taken no action regarding those shares during the marriage nor commingled those assets with marital accounts. These assets could arguably be separate property.

Even if the property is classified as “separate property,” the Court has the ability to invade based on a showing of “need” or “contribution.” Contribution can be direct (actively contributing to the acquisition, improvement or accumulation) or indirect (running the household and caring for the children while the other spouse worked in the business).  Equitably separating business assets in a divorce proceeding can be a complicated, delicate matter. Both spouses should seek professional, experienced legal representation to ensure the best possible outcome.

If you are contemplating divorce and there is a business and marital property involved, an experienced lawyer can help you assess and value your assets – regardless of if they will be contested or whether you and your spouse can agree to an equitable split without the court’s involvement.