We have a Pre-Paid Legal Services membership so I can make as many calls as I need to an attorney who specializes in this without there being a charge. I'm just waiting to get my first questions organized before calling. One thing I'll be finding out is whether it should be an LLC or what. Thanks to your replies, I'll also be asking about an exit strategy.
hey handymama! i see you live in traverse city!
my sister lives in kalkaska!....it sure is pretty up there!
oh yeah, about your age....i'm 50 this year, since i've started doing cakes, i'm in better physical condition than i was in my 30's!
it does keep you hoppin!
I would be sure to buy or borrow some books on how to write a business plan, and then write a plan with your friend. I would also make a start- up budget that you need to stick to and allow money for unexpected expenses. Also figure out what all your monthly expenses will be and how many cakes do you have to sell to pay for those expenses, and how many do you have to sell to make a profit. Be aware of when your slow sales times will be and try to find an additional product you can offer that would be appealing during that time so money isn't as tight.
Since you and your friend have worked together before and share the same values I think it can work as a partnership if you both are "on the same page" with what you want from this experience.
I wish you the best of luck! 
Most of us are married to our best friends--have disputes and live through them. I think it has a lot to do with whether you'll be under pressure to really make a "living" from the business or just discretionary income. I wouldn't do the conversion thing. I'd get a neutral location. There might be some reason they'd need to move, or she might get sick, or a sick family member, any number of reasons that might cause her to need to get out of the business. So you'd be stuck with an investment that would really be difficult to get your money out of. If that's the only option, then work out some kind of a 60/40 money split or something like that and not invest in the remodel.
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