Divorcing is hard enough, but it can get much more complicated when spouses have been running a business together. That’s because the company is considered a shared asset as well as a source of income, making it difficult to divide between the two parties or determine its “value” without harming it.
However, that process still needs to take place during the asset division stage of a divorce. Decisions about ownership, control, and future earnings can directly affect your finances as well as the business’s survival – and whether you may have a role in it moving forward.
Divorce & Closely Held Businesses: Protecting Your Business Assets in Illinois
Both spouses want to ensure their ongoing financial stability once they’ve dissolved their marriage. When they have run a business together, lawyers often deal with the aftermath because the finances haven’t necessarily been subject to disclosure rules. There are two kinds of business property you could own:
- Liquid assets (like cash, bank accounts, and investments); and
- Non-liquid assets (accounts related to your business, real estate, and retirement).
These mom-and-pop situations can be fraught. Rather than face the situation alone, discuss how to proceed with a lawyer with expertise in this area.
Dividing the Family Business in an Illinois Divorce
Under Illinois law, businesses involved in a divorce are valued as part of equitable distribution, meaning the court seeks a fair (not necessarily equal) division based on the facts. Therefore, don’t automatically assume your business will be split in half, with you and your ex sharing equal ownership or control over it. In a no-fault divorce state, business valuations focus on a few different factors:
- Marital vs. non-marital ownership;
- Fair market value; and
- Each spouse’s contribution to the company.
Who Owns What: Will Your Ex Get Half of Your Business?
You can work in a family business and not be aware of all its operational expenses. Whether a couple opened and ran it together or one spouse was more involved than the other, a legal expert will help you protect your interests. They can closely examine its valuation and determine who controls what, information that won’t easily be identified without outside assistance.
Have your lawyer help you in these key areas:
Disagreements Over the Business’ Valuation
Client concern: You may worry the business will be valued too low or too high, that you’ll either receive less than your fair share or owe more than you should. You’re right to think about this, as not everyone who gets divorced achieves a fair settlement.
Solution: We take every measure to remain impartial when consulting our clients, and when necessary, retain valuation experts who can scrutinize our assumptions to ensure a fair and equitable outcome.
Protection From Hidden or Manipulated Value
Client concern: One of the biggest concerns for couples, particularly in a high-asset divorce, is that their earnings may be understated to lower the share they believe they are owed.
Solution: Have an expert help you analyze the financials closely and look for items like normalization adjustments to get an accurate reflection of what the company earns.
Related reading: Find out ways to determine whether your ex is hiding assets from you.
Determining Income vs. Asset Value
Client concern: Are you worried about your business income being overestimated, leaving you with fewer assets post-divorce? It’s wise to make sure your assets aren’t conflated with future income.
Solution: Find a lawyer who can separate enterprise value from personal goodwill so that the full picture is considered. A partner who knows how to make these kinds of complex calculations properly will ensure nothing is “double-counted.”
Control and Liquidity in Asset Division
Client concern: Do you fear losing control of the business or being forced to sell it just to split up your assets? Loss of financial control is a completely normal, common fear that people face in divorces.
Solution: Instead of ignoring your fears, address them head on. A lawyer can help you argue for buyouts, structured payments instead of liquidation, and use other strategies to protect your liquidity.
Educate Yourself: Think of Your Business as Marital Property
People can underestimate their role in making money for a small, closely held business. Hiding from that reality instead of educating yourself can have long-term implications. If you’re getting a divorce (or think you’re headed that way), think about what role, if any, you’d like to continue having in it. Your business will likely be treated like any other marital property. Just as with a shared bank account or physical belongings that were purchased together, it can be divided or otherwise allocated as part of the marital estate.
Understanding how your business might be valued, divided, or offset against other assets can help you prepare and protect your interests.
We Can Help with Business Valuations in Cook, DuPage, Will, & Kane Counties
Do you need help protecting your business assets? If you’re facing a divorce involving a business, the Law Office of David A. King, P.C. can help you understand your rights, protect your interests, and plan your next steps with clarity and confidence.
Call 630-504-7210 to discuss how we can help, or find out about our services at the Law Office of David A. King, P.C.
