Handling the Family Business During a Divorce

 Posted on May 31, 2017 in Division of Assets

When a couple is going through a divorce, the most difficult part of the process is often asset division. This may be especially true if there is a family business involved, as the intricacies of evaluating a business can make considerations for property division quite complex. If possible, having clauses in your business agreement to deal with the possibility of a divorce can prevent problems down the road, but if it is too late for that, the next best option is to be as familiar as possible with how business valuation actually works.

Before Going Into Business

Two scenarios can occur in terms of business interests and marriage. The first, more common situation is that your spouse does not work with you in the business, but by virtue of you owning equity in the business, he or she may be entitled to a stake if you divorce. Even though a business that you start before marriage is technically non-marital property, it has a good chance of becoming marital property, given the nature of Illinois law. Personal effort from one or both spouses can be seen as contributions not from the individuals but from the marital estate, which could make the entire business—or at least a substantial portion of it—marital property.

If possible, it is a good idea to insert clauses in your articles of incorporation or in a prenuptial agreement signed by both spouses that would dictate the disposition of the business in the event of a divorce. At the very least, you should agree upon a procedure to follow by which the business can be liquidated. This will save time and trouble if a divorce does become a reality. Obviously, if you are already in the midst of a divorce, however, it is too late for a preemptive agreement.

As Business Partners

If you and your spouse are business partners, the options are somewhat different. It can be as straightforward as one spouse being able to buy out the other, and thus receiving fewer assets in the division phase of your divorce. This is because the value of the business is likely to outstrip most other marital assets. If a buyout is not an option due to shareholders or some other factor, the other option for many couples is simply to remain business partners, especially if your relationship remains somewhat amicable.

The general rule in Illinois is that if spouses cannot agree on the disposition of the business, the court may have the right to divide it if it is marital property. However, given that the closure or sale of a business may affect far more than just the spouses, every effort will be made to keep the business in one piece. The future of the business is an interest that has to be balanced against the principle of equitable distribution. Ideally, the business can be retained as is or sold as one entity so that fewer people—including employees and clients—are affected.

Contact a Knowledgeable Attorney

The goal for most couples during asset division in a divorce is to conclude the process as fairly and efficiently as possible. Having a family business as a marital asset can be confusing and difficult. Fortunately, we can help. Contact an experienced DuPage County divorce attorney at Pesce Law Group, P.C. today. Schedule your free consultation by calling 630-352-2240.

Source:

http://www.ilga.gov/legislation/ilcs/documents/075000050K503.htm