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Divorce and Your Business: The Role of “Fault” in Dividing the Marital Estate

While fault plays a role in determining an equitable division of marital assets, it’s generally not overemphasized.

It’s understandable and natural to want to point fingers and assign blame in divorce. However, the goal of the court is not to award blame and innocence, but rather to find an equitable division of marital assets.

In Michigan case law, the general trend is to limit the role of fault arguments in divorce settlements.

Dissipation of assets — a legal concept that is related to fault — means that one spouse has used money from the marriage for purposes not related to the marriage, like money spent on a lover.

Courts will generally attempt to “even out” any dissipation of assets to make it fair for the non-dissipating spouse.

Examples of how courts view “fault” when determining a divorce settlement:

Several cases have stated that in considering fault, only behavior causing the breakdown of the marriage is pertinent in making divorce rulings.

The Role of Fault in Dividing the Marital Estate by Lakeshore Law & MediationFor example, in the Knowles1 case, the court found “fault” after the date of filing for divorce was not pertinent because it did not lead to the breakdown of the marriage.

In the Zecchin2 case, the trial court ruled that the wife was at fault for the breakdown of the marriage because she had ordered the husband to leave.

The Court of Appeals did not agree with the trial court about the ruling stating “fault” is based on the conduct of the husband or wife leading to the separation rather than on who left whom.

The Court of Appeals reviewed the trial court’s ruling and said that the husband and wife were equally at fault for causing the marriage to breakdown. The trial court was instructed by the Court of Appeals to “do over” and directed the trial court not to consider fault when re-calculating spousal support.

Even when fault leads to the breakdown of the marriage, courts are not to overemphasize this factor. Fault is only one of a number of pertinent factors in the court’s goal for an equitable division. Fault is not to be used to punish but only to make things “equitable.”

If you’re facing divorce and need assistance, the attorneys Lakeshore Law & Mediation are here to help. Contact us today and let us help guide you forward.

References:
1. https://www.courtlistener.com/opinion/2212417/knowles-v-knowles/
2. http://www.leagle.com/decision/1986872149MichApp723_1790/ZECCHIN%20v.%20ZECCHIN

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Determining the Value of a Closely Held Business

What is a Closely Held Business?

A closely held business is defined as a business entity whose shares are held by only a small number of stockholders. The stockholders typically have a common interest in the company (i.e., family members), and the shares of stock are generally not traded in the public stock market1.

Valuing a Closely Held Business

Determining the value of a closely held business involves many factors and considerations.

Valuing a Closely Held Business by Lakeshore Law & MediationBecause there is no standard formula for valuing a company whose stock is not actively traded, your lawyer can appoint a valuation expert to help appropriately determine the value of your company.

In the Kowaleskycase, a Michigan case on the value of closely held businesses, the Michigan Court of Appeals stated that, in determining the value of a closely held business, trial courts may use Revenue Ruling 59-60 if they find it helpful, but they are not required to use that ruling or any other one specific method. There are several methods, or approaches, to valuing a business.

The following factors, found in Revenue Ruling 59-60, from the Internal Revenue Service, are commonly considered in finding value:

  • the nature and history of the business
  • the economic outlook in general, and the condition and outlook of the specific industry in particular
  • the book value and financial condition of the business
  • the earning capacity of the business
  • dividends and dividend-paying capability
  • the existence of goodwill or other intangible value
  • previous sales of ownership interests and the size of the block valued
  • market prices of businesses engaged in the same or similar line of business, which trade in the open market

Ultimately, the goal of the valuation expert is to determine fair market value of your business. Every case must be evaluated on the unique set of facts. All factors influencing the final value of the company must be carefully examined.

There are three categories regarding “Approaches To Value” in valuing marital business interests:

  1. the asset
  2. income
  3. market

Within each of the approaches listed above, are “methods” in arriving at a value.

When approaching value from an Asset standpoint, the valuation expert will look at book value, liquidation value, and adjusted net asset value.

When approaching value from an Income standpoint, the expert will look at discounted cash flow and capitalization of earnings.

When approaching value from the Market standpoint, the expert will look at reference data regarding sales of similar businesses.

Hiring a good valuation expert may be crucial to your divorce case. A solid, valid opinion of value will be based upon all of the useful facts, common sense, and reasonable conclusions.

Do you have questions regarding “Closely Held Business” and divorce? If so, we’d love to hear from you. The attorneys at Lakeshore Law & Mediation are dedicated to providing you guidance with all legal aspects of your divorce, so you can focus on moving forward. Contact us today!

References:
1.
https://www.legalmatch.com/law-library/article/closely-held-business-laws.html

2. http://www.leagle.com/decision/1986299148MichApp151_1284/KOWALESKY%20v.%20KOWALESKY

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Divorce and Your Business: Determining the Value of Your Marital Estate

What is the Value of My Marital Estate?

Generally speaking, a marital estate is divided equitably. In order to divide a marital estate, your divorce attorney must know the values of all assets and debts. The value of those assets may require the opinion of an expert on valuation. The court looks at many factors to determine how to divide assets and debts.

If a husband or wife wants to include an asset or debt in the marital estate, that person bears the burden of proving a value. The court may rely on expert testimony to determine the value of assets, such as real property, art, antiques,  guns, coins, and business interests.

Determining the Value of Your Marital Estate with Lakeshore Law & Mediation

Your attorney, together with a valuation expert, can help determine the value of your marital estate to ensure assets and debts are properly assessed.

In the case of a closely held business, if the court does not have enough reliable evidence to determine value, then the court could appoint its own business valuation expert.

If you’re facing divorce, it’s important to have your assets and debts carefully reviewed and assessed.

The attorneys at Lakeshore Law & Mediation can help. We hire the most experienced valuation experts and are committed to helping you navigate through all legal aspects of your divorce.

Do you have questions regarding your marital estate? We’d love to hear from you. Contact us today!

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Divorce and Your Business

How the Value of Your Business is Determined & Divided

What Happens to Your Business During Divorce?

If you’re facing divorce and own an interest in a business, it’s important to understand how your business will be handled. Whether it be: tool and die, law office, chiropractor, photography, hair salon, manufacturing, grocery store, family farm, or construction business, the value of the business must be determined and divided in a divorce.

Divorce and your BusinessWhy? Because in most cases, the value of the business may be one of the most valuable assets of the marital estate.

Step 1: Hire a Valuation Expert

It is essential your divorce attorney hires a valuation expert for the purposes of divorce. Although the financial aspects of your business may be sensitive, the valuation expert must be allowed to confidentially review financial information about the company. In most cases, the financial information is subject to a protective order to maintain as much confidentiality as possible about the financial status of the business.

Hiring a qualified valuation expert early in the case is an important task of your divorce attorney. There is not just one single method or approach to valuation of a business and, the method for valuation will vary depending on the nature of the business in your case. A valuation date must be selected for the value of the business. This date is usually based upon tax return data and material received during the discovery process.

It’s our business to protect yours.

If you own an interest in a business and are facing divorce, be sure your assets are in good hands. An experienced divorce attorney can help you find the right valuation expert to meet your needs.

If you have questions about how divorce will affect your business, contact Lakeshore Law today.

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Wise Money Choices While Contemplating Divorce

Be Smart About Finances in Divorce!

Tips for Finances in Divorce from Lakeshore Law and Mediation of Spring Lake MISome marriages are just unhappy. Days of bickering and cold shoulders pile one on top of the next. For some, marriage counseling can offer a new perspective. For others, divorce may be the fresh start they have been seeking.

If you have decided to file for divorce, or you have been shocked by being “served” with divorce papers, you will need to make wise choices as you navigate finances in divorce.

 

7 Points of Financial Wisdom During Divorce

1. Prepare a Budget.  If you have never lived by a budget before, NOW, is the time to sit down and consciously become aware of your monthly bills. There are many online tools to help you prepare a budget, or your attorney can provide you with a schedule of expenses (including recurring and non-recurring expenses).

Since you will incur attorney fees, it is important for you to project the cost to include in your budget as well. Ask direct questions of your attorney as to “how much your divorce will or may cost?”

2. Prepare an Asset and Debt Spreadsheet.  Do you know your financial standing? It is amazing how many people are unaware of their exact financial outlook. Many couples have one person who handles all of the finances while the other person just contributes a paycheck and remains “in the dark” about bottom line.

When faced with divorce, financial knowledge is a MUST. There have been cases where a spouse is totally blind-sided by credit card debt, lack of IRS tax payments, or other financial debacles that significantly affect them for the rest of their lives.

3. Be Aware of your Emotions. In a stressful situation, like divorce, it is difficult to make wise, thoughtfully considered decisions. People who “just give up” or “fight to the death” often regret their decisions later on. “Buyers remorse” is common once the divorce settlement’s ink has dried.

An attorney can help you gain perspective on your financial decisions. It is important to separate emotional reactions from financial results. Your decisions now will  affect you in the long term.

4. Your Children. Children will adjust to the new living situation so long as they are not used as pawns by either one of you to gain either and emotional or financial advantage. Children are the innocent third parties in any divorce. Do not share “adult” topics with them. Assure them that both you and your spouse will always love them. Leave your children out of the controversy. If you need help with this aspect of divorce, seek counseling for yourself.

5. A New “Friend”. While it may be exciting to move on from the old “ball and chain,” having a new love interest may drain your pocket book when you can least afford the luxury.

Also, spending marital money on a new love may alter the final financial outcome of the divorce,  if you are using “marital money” for the benefit of a third party. Watch your step in this arena.

6. Begin Separation of your Accounts. You must be aware of any court orders regarding “dissipation of marital assets.” However, once temporary orders have been established, it is important for you to set up separate accounts, both checking, savings, and credit cards where appropriate.

7. Credit Reports. If you are a person who never checks your own credit report, now is the time to start. My annual credit report allows for you to receive all three major credit reports once per year at no charge. You don’t have to pay extra for your “credit score.” Just get your reports and become familiar with the content of each report. If you need help understanding what they mean, ask your attorney.

 

If you need personal financial advice for your divorce, Lakeshore Law and Mediation is here to help! Simply give us a call at 616.844.4091

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Marital Business Interests in Divorce

How to Handle a Spouses’ Business during Divorce

Marital Business in Divorce - LakeshoreLawandMediation.com

“If my Wife/Husband owns a business, but it is only in his/her name, does that mean they “get” the business if we decide to divorce?”

 

A business that is developed or actively managed during a marriage is USUALLY considered a marital asset.

However, a lawyer must evaluate and assess the answer to the following questions and more:

  • Was there a valid pre-marital agreement that addresses the business interest?
  • Was there a valid post-nuptial agreement that addresses the business interest?
  • Does the business actually have value?

If the business is determined to be an asset of the marriage, then, certain financial information must be studied to determine the “value” of the asset.

Here is a brief list of information that a lawyer will need to determine the value of a business:

  1. Five years of Financial statements
  2. Recent Monthly or Quarterly statements as compared to the same period of the last year
  3. Board of director minutes for the past five years
  4. Profit and Loss statements for five years
  5. Income tax returns
  6. Personal Income tax returns
  7. Accounts receivable with aging schedules
  8. Depreciation schedules
  9. Shareholder agreements
  10. Expense reports
  11. Budgets
  12. Lease agreements
  13. Any appraisals

It may be necessary to hire a “valuation expert” to  determine the value of the marital portion of the business interest.

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What are Separate Assets in a Divorce?

The issue of separate assets in a divorce is an area of Michigan Law that is constantly changing. Lawyers keep their eyes on recent opinions from the Court of Appeals and the Supreme Court on a daily basis.

“Separate Property”  is not considered as a part of the marital estate. The court must make a determination about what is separate property and what is “marital” property.  Separate  property will be awarded to the person who it belongs to except for limited statutory exceptions to the rule, namely, need or contribution (there are always exceptions to the rule). The consequences of finding an asset to be separate as opposed to marital can change the bottom line in a divorce settlement immensely.

So, exactly how is “separate property” defined???

Here is a list of questions to ask in making that determination: Read more

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How do I file for Divorce in Michigan?

The heart wrenching decision to become divorced is never easy.  There are so many things to consider – property division, parenting decisions, custody arrangements, child support and much more.  And while all of these things are part of the overall process, the first question to get the ball rolling is the most basic:

How do I file for Divorce in Michigan?

If you’ve made the decision to divorce and you’re ready to file, here are a few guidelines to help you along the way: Read more