Plaintiff and defendant were both previously married and divorced. They married in February 2013. The marriage had difficulties from the very start, and plaintiff filed for divorce in May 2015. Plaintiff and defendant did not have children together. The primary issues for trial involved whether and to what extent to include various assets in the marital estate.
The evidence showed that plaintiff came to the marriage with a net worth of between $5,000 and $10,000, even though she owned a rental home. She previously worked in real estate but quit her job during the marriage and, with defendant’s help, purchased a franchise. Defendant had significant premarital assets. He owned a company. While the parties were still dating, defendant also purchased a home that the parties resided in throughout the marriage. At trial, the parties disputed the amount that the company’s value increased during the marriage and whether the home had increased in value.
The trial court held a bench trial on the disputed issues over two days. The parties each called an expert to testify about the company’s value. The trial court found that the company’s value increased by $400,000 during the term of the marriage, but did not include the amount in the marital estate. The court found that plaintiff’s franchise was worth $78,000 because that was the number both parties selected, and it was the amount remaining on the loan used to finance the purchase. The trial court also found that the home had not increased in value during the term of the marriage. The trial court also divided the parties’ retirement accounts. It found that the total value of the marital estate was $598,613.
Although the trial court recognized that a marital estate will normally be divided 50/50, it elected to award 60% to defendant and 40% to plaintiff. It explained that the marriage was short, and the parties did not have children. Additionally, defendant funded 95% or more of the marriage. It specifically stated that there was no evidence that plaintiff provided assistance to defendant’s business or really provided much assistance to the marriage. The court calculated plaintiff’s share of the estate to be $239,446, but reduced that amount by the value of the franchise, which was $78,000. The remaining award was $161,446. It indicated that defendant would have to pay that amount to plaintiff.
There was some evidence that plaintiff directly supported defendant’s efforts to run his business. She testified that she helped organize the Christmas party for the employees, attended trade shows, and offered advice to defendant on various matters; however, the trial court found that she did not directly contribute to the company.
In analyzing whether a spouse has contributed to the acquisition, improvement, or accumulation of a separate asset, Michigan courts have long recognized that a spouse does not have to make a direct contribution before a court will be justified in invading the separate asset.
It is true that property earned by one spouse during the term of the marriage is presumed to be marital property. But it is not clear that the revenue generated by an entity that is wholly owned by one spouse as his or her separate property invariably constitutes earnings of that spouse. Michigan courts respect the separate existence of an artificial entity, even when the entity is solely owned by an individual. Courts will only disregard an entity’s separate existence when the owner has misused the separate existence of the entity and his or her misuse has harmed another. Absent circumstances involving the misuse of the corporate form, the trial court would usually be required to respect the company’s separate existence and treat the earnings retained as its separate property.
When presented with a dispute over retained earnings, trial courts must determine on a case-by-case basis whether the earnings retained by the entity should be treated as marital income for purposes of dividing the marital estate.
Are you facing a divorce in Michigan? Do you have questions about how your assets and your debts will be divided? Brad Aldrich has more than 19 years of experience and, together his legal team, they will guide you through the property division process, negotiating and fighting for the best possible outcome with your divorce decree or separation agreement.