When a business owner or a member of a professional practice divorces, his or her 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 prior to 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.
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, he or she 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.
What you decide to do with your business can determine the best method to use to value the business. There are three main ways to value a small business in a divorce:
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.
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