Divorce for Business Owners

When a business owner or a member of a professional practice divorces, their share of the business must be valued. Because it provided the couple with part or all of their income, it is part of their marital estate and subject to equitable division under the Illinois Marriage and Dissolution of Marriage Act. Whether the other partner worked at the business, as well, or has a different career can impact how a business is divided. If one partner owned the business before entering the marriage, its division can be more complicated. Although this would technically make the business a piece of solely-held property, the other partner’s effort in aiding its development during a marriage is considered when dividing it. Assets subject to this consideration are known as commingled assets.

Deciding What to Do with the Business After your Divorce

Before you value your small business, speak with your partner about your future plans for the business. Sometimes, it is easiest for a couple to sell their business and split the profit, much like a divorcing couple might sell their home and split the profit in their divorce. But this is not always the ideal choice.

When one partner wants to continue operating the business, they may negotiate a property division settlement that allows him or her to keep the business in exchange for the other spouse keeping a larger share of other marital assets. In a way, this is like “buying out” the other spouse’s share of the business.

In amicable divorces between business co-owners, the right choice might be to continue operating the business together. Couples who choose this are advised to negotiate co-ownership agreements that stipulate each party’s interest in the business and how it will be divided if the business closes or one party opts to leave.

Ways to Value a Small Business

What you decide to do with your business can determine the best method to value the business. There are three main ways to value a small business in a divorce:

• The Market Approach. This method is generally best for couples who choose to sell their businesses. In this approach, the business’ value is determined by comparing it to similar businesses that have recently sold and their prices;
• The Income Approach. A business’ current and projected future incomes are considered with this approach, which may be utilized by individuals who wish to continue operating their businesses singly after the divorce; and
• The Asset Approach. With this approach, a value is determined by considering the business’s assets as well as its debts. Assets considered can go beyond operating equipment and income; they may include clout in the business community.

Work with an Experienced Divorce Lawyer

As a small business owner, you have issues to consider in your divorce settlement that others do not face. Work with a divorce lawyer who has specific experience working with small business owners to make the property division process as straightforward as possible for you. To get started, contact SAM LAW OFFICE LLC today to set up your initial consultation with us.