How Is a Business Divided in a Michigan Divorce?

A business owned by one or both spouses is treated as marital property subject to equitable distribution under MCL 552.19, the same framework used for a home, retirement account, or any other significant asset. Whether the business itself, or just its growth during the marriage, is divided depends on when it was started and how it grew.

For business-owning spouses, this is often the most financially significant issue in the entire divorce. Understanding how Michigan actually approaches business valuation and division can help you protect what you've built.

Is the Business Marital or Separate Property?

The answer depends heavily on timing.

A business started during the marriage is generally treated as marital property in its entirety, regardless of whose name is on the paperwork.

A business started before the marriage is more complicated. The original value at the time of marriage may remain separate property, but any increase in value during the marriage can still be subject to division, depending on how that growth happened.

Active vs. Passive Appreciation: Why This Distinction Matters

This is one of the most important, and most misunderstood, concepts in business valuation during a Michigan divorce.

Active appreciation is growth driven by effort, decisions, and work during the marriage, expanding operations, landing new clients, reinvesting profits strategically. Michigan courts have held that this kind of growth is marital property, because it was created through effort during the marriage. In Hanaway v. Hanaway, 208 Mich. App. 278 (1995), the Michigan Court of Appeals ruled that a husband's inherited stock in a family business was subject to division because his active efforts, supported by his wife's contributions at home, drove its increase in value. The court reinforced this active-versus-passive framework again in Reeves v. Reeves, 226 Mich. App. 490 (1997).

Passive appreciation is growth that happens on its own, such as market conditions improving or an asset simply becoming more valuable over time without either spouse doing anything to cause it. Passive growth is more likely to remain a separate property.

Under MCL 552.401, if one spouse contributed to the acquisition, improvement, or accumulation of the other spouse's separate property, including a business, the court can award a portion of that increased value to the contributing spouse. A spouse who supported the household, raised children, or contributed labor or capital to a business that was technically owned separately may still have a legitimate claim to part of its growth.

How Michigan Courts Value a Business

Once it's clear a business, or a portion of its value, is subject to division, the next step is establishing what it's actually worth. This almost always requires a professional business valuator or forensic accountant working alongside your attorney.

Michigan courts and valuators typically rely on one or a combination of these approaches:

Income approach: Values the business based on its ability to generate future earnings, analyzing revenue trends and profitability.

Market approach: Compares the business to similar companies that have recently sold, similar to how real estate is appraised.

Asset approach: Calculates net asset value based on the business's underlying assets minus its liabilities.

Michigan courts have also approved specific valuation methodologies in individual cases. In McNamara v. McNamara, 178 Mich. App. 382 (1989), the court upheld using a three-year average gross profit calculation to value a professional practice, an approach Michigan courts have continued to apply in more recent business valuation disputes.

What About Hidden or Undervalued Business Assets?

It's not uncommon for a business-owning spouse to understate income, delay contracts until after the divorce is finalized, or otherwise obscure the business's true value. This is exactly why a professional valuator's involvement matters. Through the discovery process, financial records, tax returns, client contracts, and accounting statements can be examined closely to establish an accurate picture of what the business is actually worth, not just what's reported on paper.

What Happens Once the Business Is Valued?

Once a value is established, there are typically a few paths forward:

Buyout: The spouse keeping the business pays the other spouse their share of its value, often by offsetting other marital assets rather than paying cash directly.

Offsetting assets: The non-owning spouse receives a larger share of other marital property, like the home or retirement accounts, to balance out the business's value.

Selling the business: In situations where the parties can't reach an agreement, selling and dividing the proceeds is sometimes the only workable option, though this is typically a last resort given the disruption it can cause.

Does Fault Affect How a Business Is Divided?

Michigan is a no-fault divorce state, meaning neither spouse has to prove wrongdoing to file. However, fault can still influence how property, including a business, is divided. Under the factors established in Sparks v. Sparks, 440 Mich. 141 (1992), a court may award an unequal division of property when one spouse's conduct significantly contributed to the breakdown of the marriage. This is one factor among several, not a guaranteed outcome, but it's a real consideration Michigan courts are permitted to weigh.

Talk to a Michigan Family Law Attorney at Harris & Literski

A business is often the single largest asset in a divorce, and getting its valuation and division right requires real experience with financial investigation and negotiation, not just a general understanding of property law.

Our family law attorneys have represented business-owning clients in Livingston County, Washtenaw County, and Oakland County since 1985, working to protect what our clients have built while ensuring a fair outcome for both parties. Contact Harris & Literski to schedule a free consultation.

Frequently Asked Questions

Is a business considered marital property in a Michigan divorce? It depends on when it was started. A business started during the marriage is generally treated as marital property. A business started before the marriage may remain separate property, but any increase in value during the marriage, particularly if driven by active effort, can still be subject to division.

How is a business valued in a Michigan divorce? Courts and professional valuators typically use one or a combination of three approaches: the income approach (based on future earnings), the market approach (comparing to similar businesses sold), and the asset approach (net asset value). A forensic accountant or business valuator is usually involved.

What is the difference between active and passive appreciation of a business? Active appreciation is growth caused by effort and decisions made during the marriage, such as expanding operations or landing new clients, and is generally treated as marital property. Passive appreciation happens without either spouse's effort, such as market conditions improving, and is more likely to remain separate property.

Can a spouse who didn't own the business still get a share of its value? Yes, in some circumstances. Under MCL 552.401, if a spouse contributed to the acquisition, improvement, or accumulation of the other spouse's separately owned business, the court can award a portion of that increased value to the contributing spouse.

Does fault affect the division of a business in a Michigan divorce? It can. While Michigan is a no-fault divorce state, courts may still consider fault as one factor when deciding how to divide marital property, including a business, if one spouse's conduct significantly contributed to the marriage's breakdown.

If you're a business owner facing divorce in Livingston County, our family law attorneys can help you understand your options and protect what you've built. Contact our office at 810-676-9147 to schedule a free consultation.