The 51-year-old said in a written statement that his family deserves privacy and residents deserve to know the state treasurer is "not distracted by such issues and events."
Dillon, a former Democratic House speaker who ran for governor in 2010, was named treasurer by Republican Gov. Rick Snyder when he took office in 2011. He said he would stay in the post to assist with the transition to his yet-to-be-named successor. Snyder said his last day is Nov. 1.
"For these personal and professional reasons, I have determined it is in the best interests of all that I resign," Dillon said. "I have always considered it a privilege and honor to work on behalf of all Michigan residents and will look back fondly on my years of service in Lansing."
Dillon was heavily involved in efforts to turn around deficit-ridden cities and school districts. And on Thursday, he was deposed by lawyers for unions and city retirees opposing Detroit's bankruptcy filing, the largest in U.S. history.
But he also has been the subject of unflattering news stories about disputes with his ex-wife, Carol. She accused him of being drunk and assaultive at her home in July. He denied it, and the Wayne County prosecutor's office said there was insufficient evidence to file charges.
A judge last summer barred the Dillons from having contact for a year unless it involved a minor child.
Andy Dillon also has had trouble with alcohol and entered a rehab program in January, friend and public-relations specialist Kelly Rossman-McKinney told reporters in August.
Snyder, in a written statement, said he accepted Dillon's resignation "with regret but understanding."
"He has been instrumental in many of the comprehensive reforms that are contributing to Michigan's comeback," Snyder said. "Andy has worked tirelessly on behalf of the people of Michigan, and we're a stronger state because of his dedication, expertise and leadership."
Dillon said he was "deeply committed" to the first-term governor and has "tremendous respect" for him.
Dillon, of Wayne County's Redford Township, lost his party's primary election for governor in 2010 to Lansing Mayor Virg Bernero. Bernero lost to Snyder, who quickly tabbed Dillon as treasurer.
In his nearly three years on the job, Dillon ran a department responsible for implementing two legislative rewrites of Michigan's 1990 law that allows the state to declare financial emergencies in local governments and schools and appoint managers.
The tougher 2011 law was repealed by voters last November, but the GOP-led Legislature and Snyder passed a new one that still gives emergency managers broader powers than the original law.
In his deposition, Dillon said he initially turned the treasurer job down because he was ready to return to the private sector but reconsidered after a friend told him it was a great opportunity.
"Even though I had spent six years in Lansing, I didn't fully appreciate the role of the treasurer for the state," he said, calling it a "fascinating job and (a) fascinating time to have it."
Dillon served in 1985 as an aide to U.S. Sen. Bill Bradley. He was a member of the Redford Planning commission from 1990 to 1992, and also served as a magistrate on the 17th District Court. He was elected to the Michigan House in a 2004 special election, and was the House speaker beginning in 2007.
Dillon earned his law degree in 1988 from the University of Notre Dame. He worked as an attorney and later was managing director of Wynnchurch Capital, a private equity firm based in Chicago.
Critics of Snyder and Dillon questioned the timing of the announcement, while others said it was entirely personal and in no way was he pushed out.
"We respect the Dillon family's need for privacy, but wonder why it wasn't an issue months ago," said Karla Swift, president of the Michigan AFL-CIO, which has opposed the appointment of emergency managers.