Valuing & Dividing the Family Business
When a couple is going through a divorce, one of the most difficult parts of the process is often asset division especially if a family business is involved,. The intricacies of evaluating a business can make the process of property division quite complex.
If possible, having clauses in your business agreement to deal with this can help avoid problems down the road. However, if it is too late for that, the next best option is to be as familiar as possible with how business valuation actually works.
Before Going into Business
Two scenarios can occur in terms of business interests and marriage. The first, more common situation is that your spouse does not work with you in the business. Yet by virtue of you owning equity in the business, he or she may be entitled to a stake if you divorce. Even though a business you start before marriage is technically nonmarital property, it has a high chance of becoming marital property, given the nature of Illinois law. Personal effort from one or both spouses can be seen as contributions not from the individuals, but as contributions from the marital estate, which does make it marital property.
If it is possible, it is a good idea to insert clauses in your articles of incorporation or in a prenuptial agreement signed by both spouses that would dictate the disposition of the business or at least the procedure to follow by which the business can be liquidated. This will save time and trouble in the event of a future divorce. Obviously, if you are already in the midst of a divorce, however, it is too late for such an initiative.
As Business Partners
If you and your spouse are business partners, the options are somewhat different. It can be as straightforward as one spouse buying out the other, and thus receiving fewer assets in the division phase of the divorce (given the value of the business is likely to outstrip most other marital assets). If a buyout is not an option, due to shareholders or some other factor, the other option for many couples is simply to continue as before, especially if your relationship remains somewhat amicable.
The general rule in Illinois is that if spouses cannot agree on the disposition of the business, the court may have the right to divide it if it is marital property. However, given that the closure or sale of a business may affect far more than just the individual owners, every effort will be made to keep the business in one piece. The future of the business is an interest that has to be balanced against the principle of equitable distribution—ideally, the business can be retained as is or sold as one entity, so that fewer people are affected.
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