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Small Businesses in Divorce

Entrepreneurs and small business owners often have strong, even emotional, ties to the companies that they run. This can make for a difficult realization for business owners when they discover that their business may need to be divided in the divorce. While this may be intuitive in instances where both spouses had a hand in running the business or founded it together, it is true in far more cases than that because businesses often qualify as marital property. This gives rise to a new problem. If businesses are part of a couples marital property, the court must somehow determine the company's value. While this is easily done for major, publicly-traded businesses, it is a much more complex inquiry to value small businesses in divorce.

Dividing up a Business

The notion that a business may be divided up in divorce may seem surprising, but it is actually the logical endpoint of Illinois marital property laws. In Illinois, most property acquired during a marriage qualifies as marital property, and there is no exception for businesses. Even property acquired before a marriage can become marital property in some circumstances.

It is also worth noting that this notion of “dividing” up a business may give people the wrong impression. Although there are some cases where the court may actually give each spouse an interest in the business, this is not always so. Oftentimes, the court will simply enter the business into the marital pot, but allow the spouse who is involved in the business to keep it, provided that the overall division of marital assets ends up being equitable.

Valuing a Business

In order to determine whether a division is ultimately equitable, the court will need to figure out how much the business is actually worth. At first blush, this may seem like a simple matter in favor of checking the companys balance sheet, and checking assets versus liabilities. However, that is often an overly-simple way of looking at a company that misses important portions of a business value.

Instead, valuing a business involves the hiring of an appraiser who can use a variety of techniques to determine how much a company is actually worth. For instance, some analysts can look at the cash flows of a business over a period of several years and use that information to make predictions about what the company could be sold for. Importantly, couples can decide whether they want to use the same neutral appraiser, or whether they would each like to hire their own independent appraiser.

The valuation of businesses is just one of many potential complexities that can arise during a divorce. If you are considering filing for divorce and want to learn more about how the process works, contact a skilled Naperville family law attorney today.

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