If you own your own business, you know that it can be hard sometimes to not take things personally. With so much cash, sweat, and tears invested in your company, its successes or struggles will impact you in ways far beyond what is reflected on a balance sheet.
Just as your business can impact your personal life, your personal life can have a huge effect on your business, especially if you are going through a divorce.
The ownership, valuation, and division of small business interests in a divorce can be a major source of conflict. Whether you own your business by yourself or with other partners or members, it is important to understand how the end of your marriage will affect your business, your ownership interest, and your wallet.
In an Illinois divorce, property is divided into “marital” property and “non-marital” property. The former is property acquired during the marriage and will be equitably divided between the spouses. The latter is the property of the spouse who owned it prior to the marriage and will be awarded to that spouse.
As such, if one spouse owned a business prior to the marriage, it will generally remain their business after the divorce. But this is where things get complicated.
Businesses aren’t pieces of furniture; they don’t just sit there stagnantly. During the course of a marriage, businesses grow; businesses pay salaries and make distributions; businesses incur debt; businesses obtain capital and investments from the owners; businesses may add owners, including a spouse.
Much of what happens to the business while a couple is married means that both spouses may be entitled to an interest in the value of the business. For example, the following will be counted as marital property to be equitably divided:
- Business ownership interest acquired during the marriage
- The gain in value in the ownership interest of a business established before the marriage which accrued by personal effort of the owner spouse during the marriage
- Discrete, distinguishable assets acquired by a non-marital business during marriage
Furthermore, a non-owner spouse may be entitled to a right of reimbursement for contributions made toward a non-marital business during the marriage.
When a business or an interest in a business is deemed to be marital property, the valuation of the business or ownership interest becomes a big issue. Each spouse may wind up retaining accountants or other experts to establish the value of the business such that the cash value can be allocated as part of the larger division of assets. Rather than force a divorcing couple to remain business partners, courts will often offset the value of the business interest by awarding other assets to the non-owner spouse.
Of course, a valid pre-nuptial agreement that addresses the issue of business ownership upon divorce can take all of this out of the court’s hands and bring clarity to both the divorce process as well as business operations going forward.
Louis R. Fine: Chicago Business Division and Valuation Attorney
Illinois business division and valuation issues are complicated and can have a long term impact on the financial well-being of both spouses. As an experienced Chicago divorce lawyer, I understand the complexities and challenges involved in dividing business interests as part of divorce. I work to ensure that every client receives what they are entitled to while minimizing conflict and acrimony throughout the process.
If you have questions or concerns about how your business may be impacted by your divorce, please give me a call at (312) 236-2433 or fill out my online form to arrange for a consultation. I look forward to assisting you.