Your decision will drive the division method in your divorce. If you call the business "property," as you might for a business that makes money with tangible assets, like an apartment complex, then it is subject to the "equitable" or "equal" division rules for property division. If you call it "income," as you might for a business that makes money with intangible assets, like a lawyer's practice, then it is subject to the alimony award rules.
Merely semantics is not. Most states award each spouse one-half of the marital property. However, not all states award each spouse one-half of the other's income as alimony. Therefore, when a business is both property and income, like a retro ice cream parlor with top-notch appliances and cash to pay salaries to boot, it is important to segregate the property from the income when dividing it to avoid a double dip. That is, without careful segregation, you could divide the entire business as property and then award the non-taking spouse alimony based on the taking spouse's income from the already-divided business. See, e.g., McCallister v McCallister, 517 NW2d 268 (Mich Ct App 1994).
Next, Choose Your Valuation Method
Choose wisely. Choose the wrong method, and you could overvalue the business and shell out more cash to your ex than due, or undervalue it and lose your credibility, or pay more to your expert business appraiser than the business is worth. At a minimum, the valuation should examine the business's assets and liabilities (its book value), earnings history and potential, dividend and salary capacity, goodwill and other intangibles, industry, economic environment, stock sales, comparables, and performance during the marriage. See Rev Rul 59-60.
But, no surprise, divorcing spouses and their attorneys have a remarkable capacity to make the difficulty even worse. For business valuations, this means choosing a method that focuses on certain factors at others' expense to generate the value most favorable to their position.
Finally, Get Creative
Divorce for business owners requires some creative thinking and serious problem-solving. Fortunately, at Pinnacle Family Law, we are familiar with the way courts see businesses and business valuations. From our offices in Novi and elsewhere, we provide business owners across Michigan with out-of-the-box solutions. Get effective help. Get a free consultation at (248) 290-8102.