Illinois is an “equitable division” state, which means that during a divorce, all marital property should be equitably divided between the parties. Some assets are easier to split, like shared savings accounts and vehicles. But for some, it gets even harder to negotiate who keeps what and who leaves it. This includes dividing a family home and dividing a business and all its assets.
It doesn’t matter who spent most of their time working to build the business; if it was started after marriage, it automatically becomes marital property. In circumstances where one spouse started the business before getting married, the business can also become marital property if joint funds were used in the company or if the non-owning partner made any contributions to the business, be it financial or non-financial.
Before a couple is divorced, they should know the value of the assets they own and that are subject to division. This allows the couple to know the exact property value and how much it should be sold for or what other property will have a similar or equivalent value. There are three main methods used to evaluate businesses during a divorce.
- The asset-based approach. This form of evaluation combines your business’s assets, brand value, and accounts receivable to get a total value. Defining the brand’s value in the public eye is difficult and hence expertise would be required for the appraisal.
- The market-based approach. This is probably the simplest option. Here, the appraiser looks at the recent sales of businesses similar in industry and size to yours and calculates the value.
- The income-based approach. This approach examines the current and projected earnings of the company to determine its current and potential value.
If the spouses agree, they may determine the kind of appraisal to use to evaluate the company. If the divorce case is contested, each party can use a different valuation method and try to convince the court through their testimony and maybe the use of expert witnesses. This is one more reason why it is recommended to seek help from a skilled Illinois divorce attorney.
How are businesses divided in an Illinois divorce?
In an Illinois divorce, you have several options in the division of the business.
- Some spouses choose to assign the entire company to one spouse and then assign property of similar value to the non-owning partner.
- Other spouses divide the company’s assets equitably or sell the business and split the proceeds.
- In other cases, divorcing couples can continue running the business operations together even after their marriage has ended.
However, regardless of the choice you make, you will be required to have your business properly evaluated. The value of your business will not only influence the division of debts and assets but also spousal support, child support, and other divorce issues.
How can you keep your business legally separate from your marriage?
If you founded the company during your marriage, your spouse is entitled to up to half of the company’s value of the company because it is certainly considered marital property. But there are exceptions, especially if you are particularly savvy about protecting your company from being divided in the divorce. You could:
- Have your spouse sign a prenuptial agreement to keep absolute ownership of the business you have already started or are planning to start, regardless of what happens during your marriage. This means that the business would not be included in the division of marital property.
- Sign a postnuptial agreement. This would indicate that your spouse has no interest in the business, its evaluation, and any possible ensuing litigation. The agreement also means that the business would be excluded from marital property division during the divorce.
- Set up a company ownership structure, like an LLC, shareholder agreement, or partnership, that explicitly addresses how to handle business partners who are getting divorced. Many partners have a right of refusal clause which allows other owners to buy out the partner, thus blocking the ownership shift to the spouse.
The prospect of dividing a business or company you have worked long and hard for can be appalling, but an experienced Libertyville family law lawyer at Johnston Tomei Lenczycki & Goldberg LLC can help you work towards a favorable result. We cater to our clients’ diverse legal needs, including business litigation, family law, and probate law. Contact us to schedule a free consultation today.
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