Divorce and the Family Business

 Posted on January 25, 2017 in Divorce

It is not easy to build and maintain a successful business. Family-owned and operated businesses, in particular, demand a considerable amount of time to sustain, and often necessitate substantial financial and time contributions from spouses to function. Owning a business is an effective method of building financial and employment security, but can become problematic if spouses who both play a role in the operation decide to divorce.

Ending a marriage is always a difficult process, regardless of how contested the divorce is, but when complex issues, like family-operated businesses, are present, the implications of dissolving the marriage become much thornier (absent a prenuptial agreement). Given that family-operated businesses account for at least 80 percent of all companies in the U.S., the issue of how to treat the business in the division of property is a frequent matter that is ideally addressed between the spouses privately—usually with the assistance of attorneys—before a divorce petition is filed. Understanding how these assets are divided in divorce before the process is initiated will allow parties to enter the process armed with knowledge that could assist them during settlement negotiations.

Type of Property and Valuation

Illinois applies an equitable division of property standard in divorces, and as such, all divorces should involve an assessment of one's assets and obligations at outset of the process. This information will give a party a sense of the financial resources he/she will have once the marriage is dissolved, and can identify any potential disputes over how the property is divided. Determining how to approach this aspect of divorce largely hinges on whether the property is marital or non-marital. All property acquired during the marriage is presumed to be marital and subject to division. Thus, if the business was started while the couple is married, the courts are likely to view the business as marital property and require the parties to divide it in some fashion, unless non-marital assets were used to fund the enterprise. Before determining how the business should be divided, the parties must first obtain a fair market value of the business so the court has a valuation baseline to consider. Fair market value is what a willing buyer would pay for the business if fully apprised of all relevant facts about the operation, and is determined by a valuation expert. The business is typically awarded to the spouse who holds the title, with the other spouse entitled to an in-kind division or buy-out.

In-Kind Division vs. Buy-Outs

An in-kind property division is a division of the property that leaves each spouse the sole owner of his/her portion. Courts favor this type of property division, but it may not be possible to do so or in the best interests of the parties. In that case, the court will order the spouse who intends to keep the business to buy out the other. Buy-outs are accomplished by awarding a greater share of the marital assets to other spouse until the equivalent value is received, as a lump-sum cash payment, or if the marital estate is insufficient to cover the spouse's share of the business, as payments over time.

Talk to a Divorce Attorney

If you are facing divorce, talk to an experienced Rolling Meadows divorce attorney about your rights and obligations that govern the divorce process in Illinois. Every divorce case is unique, and should be evaluated by an attorney able to detect potential issues and produce an effective response. Call 847-253-3100 for a free consultation at Cosley Law Office today.

Sources:

http://www.familybusinesscenter.com/resources/family-business-facts/

http://www.ilga.gov/legislation/ilcs/ilcs4.asp?DocName=075000050HPt%2E+V&ActID=2086&ChapterID=59&SeqStart=6100000&SeqEnd=8350000