Business Ownership and Divorce

Divorces that involve small and medium businesses have unique concerns and considerations for both parties to the divorce process.

In the event of a divorce, Illinois law provides that any asset, including any interest acquired by a party during the marriage, is deemed to be marital property, that is subject to equitable division between the parties by the Court. Marital property must be equitably divided between the parties after considering a number of factors, including but not limited to the following: the value of marital property assigned to each of the spouses during the divorce; the duration of the marriage; the economic circumstances of the parties; any premarital agreements regarding distribution of assets in the event of a divorce; the age, health and occupation of each party; and whether the award of property is in lieu of maintenance (alimony) to one of the parties. 750 ILCS 5/503.

When determining how to distribute the marital assets between parties to a divorce, the division of an interest in a small or medium business owned by one or both of the parties is more complex and requires a careful examination of the value of the business or business interests. The Court must determine the value of the business interest in order to determine how to equitably divide all marital assets in which the parties have an interest. The Court will regularly rely on the valuation reports of the parties' experts regarding the value of the business. The business valuation expert will utilize a number of different methods in determining the value of a business. The professional appraiser will examine and assess the value of the business and provide expert testimony and reports to the parties and the Court. The business appraiser will consider a number of factors when determining a business value including the assets, equipment, and inventory of the business; any real estate ownership of the business; the income and cash flow of the business; the debts and liabilities of the business, and whether the business has any enterprise goodwill. The choice of a skilled and experienced business appraiser and experienced attorney is critical in any divorce case involving a business. 

The income generated by a business or business interest can also have implications for determining the amount of child support and maintenance that may be awarded to the parties in the divorce. Issues can also arise when the business or business interest is jointly owned by the parties, or if the ownership interest is shared by third parties. The proper valuation of these interests is critical to the Court’s determination of the division of marital assets. The Court may award the entire business interest to one party and offset that value by awarding other marital assets to the other party. The Court may also require a business owner to buy out the other parties’ interest, through a buyout agreement, or in some cases, order the business or business interest to be sold. 

It is also important to understand the nature of the business interest involved. Sole Proprietorships, Partnerships, Limited Liability Corporations, and Corporations, each have their own legal and financial concerns and complexities. Understanding these complexities is crucial in the determination of the value of a business and the equitable division of marital assets between the parties to a divorce.

If you are a party to a divorce in which a business or business interest is involved, or have any questions or concerns regarding divorce or any family law related issues, please reach out to the attorneys at Lavelle Law at 847-705-7555, or email attorney Joseph Olszowka at jolszowka@lavellelaw.com to schedule a free consultation to discuss your legal options.