Can You Start a Business During Your Divorce?

There is no rule that says you cannot start a business during a divorce. But after you or your spouse starts a divorce, you cannot spend marital assets without authorization from the court.

More importantly, until the court finalizes your divorce, it could trace the funding to start the business to your marital estate. Thus, your soon-to-be ex-spouse could potentially own half of your new business.

Read on to learn whether you can and should start a new business during your divorce.

Property Distribution in a Michigan Divorce

Michigan uses equitable distribution to divide marital assets in a divorce. This system is loose and gives judges a lot of discretion when dividing property.

Importantly, Michigan only excludes premarital property from equitable distribution. The marital estate consists of all property or assets acquired after the marriage date, including assets and property acquired during the divorce.

A divorce judge will take the property in the marital estate and divide it between you and your spouse. The judge does not need to divide the property equally, but they must divide it fairly. If your spouse has less education and training, they could receive more of the marital property to provide for their needs.

Can You Start a Business During a Divorce?

You can start a business during a divorce. If you plan to use marital assets or incur debts to start the business, you will need the court’s permission. Keep in mind that the court may deny permission since your spouse could become liable for your debts.

The more relevant question is whether you should start a business during a divorce.

Should You Start a Business During a Divorce?

Assuming you can get past this hurdle by starting the business with someone else’s money, the value of your labor and efforts could end up building a marital asset. Thus, your new business could get divided in the divorce just like your other assets.

When a divorce judge divides a couple’s property, the source of the property is only one factor in deciding whether and how to divide it. Even if you believe you started the business without using marital resources, a judge might still consider it a marital asset due to the timing of the acquisition.

You should not start a business during your divorce if you want to remain the sole owner of the business after the divorce. By starting the business before the court finalizes your divorce, you run the risk of becoming a co-owner of the business with your ex-spouse or having to pay your ex-spouse for their share of the business.

Another reason you might want to wait for your divorce to end before starting your business is that the business might get included in an alimony determination. When determining whether you need to pay alimony to your ex-spouse, a court will look at all of your sources of income.

Your business might get included as a source of income along with your other businesses or jobs. This might increase your income, thereby increasing the alimony you need to pay to your ex-spouse.

Discuss Your Situation with Your Divorce Lawyer

Every situation is unique. If you have a pending divorce, consult your family lawyer before starting your business. Your divorce lawyer might have suggestions for how or when to start your new business.

To discuss your divorce and business situation with an experienced family lawyer, contact Gucciardo Family Law for a free consultation.