How Do I Protect My Business From My Ex?
By: Gordon & Perlut, LLC
Going through a contested divorce in which asset division has become an extremely contentious issue can be frustrating and challenging for both spouses involved. Under Illinois law, courts will classify property as marital property or separate property. Marital property, which includes both assets and debts of the marriage, will be divisible according to the theory of equitable distribution, while separate or non-marital property will not be divisible.
If you own a business, you likely have concerns about how you can protect your business from your ex, and whether there are any steps you can take to show that your business assets should not be classified as marital property and should not be distributed in your divorce case.
Our Cook County divorce lawyers can help you to protect your business, but in the meantime, we want to provide you with some potential options for protecting your company from your ex-spouse in your divorce.
You may be wondering: “How do I protect my business from my spouse?” One of the best and most effective ways to protect your business assets in a divorce case is to enter into a premarital or postnuptial agreement. Such an agreement can ensure that your business assets are classified as separate property and are not eligible for division in your Chicago divorce.
If you are already married, you cannot enter into a premarital agreement. If you do have an existing premarital agreement with your spouse, you should work with a Chicago area divorce lawyer to ensure that your premarital agreement is enforceable according to Illinois law. Yet even if you do not have an existing premarital agreement, you can enter into an agreement after your marriage and before your divorce that is similar: a postnuptial agreement. You should always work with a divorce lawyer on a postnuptial agreement to negotiate the terms and to ensure that the postnuptial agreement is enforceable.
To be clear, in a premarital or postnuptial agreement, you and your spouse can agree that your business will not be subject to division in your divorce.
You might also be in a situation where your business is mostly, or entirely, made up of separate property. Such a premise can be complicated to prove in a marriage, particularly if the business was earning income during the marriage (in which case, such income would be classified as marital property and subject to distribution unless you and your ex have agreed otherwise in a premarital or postnuptial agreement). However, you may be able to show that you started the business prior to the marriage and that you have only invested separate property into the business. A Cook County area divorce lawyer can say more.
If you are willing to negotiate a settlement agreement with your spouse in which you keep your business in its entirety in exchange for, perhaps, giving up your claim to other marital assets, you might be able to protect your business from your ex-spouse.
In the state of Illinois, the classification of businesses as marital property hinges on their acquisition timing relative to the marriage. Typically, any business that is established or acquired during the course of the marriage is deemed marital property, which means that it is subject to division between spouses upon divorce. However, there are exceptions to this rule. If a business was founded prior to the marriage or if it was received as an inheritance or a gift directly to one spouse, it may qualify as non-marital property. In these cases, the business would likely remain with the original owner and would not be divided during the divorce process.
Business valuation is a vital and often complex step when it comes to dividing assets in a divorce. Illinois courts utilize several methodologies to determine the fair market value of a business, including:
This approach focuses on the company’s earnings and profitability over a specified period. The valuation may consider historical income, projected future earnings, and the profitability of similar businesses in the industry to estimate the business’s financial health.
This method assesses the value of both tangible and intangible assets associated with the business. Tangible assets may include property, equipment, and inventory, while intangible assets can encompass intellectual property, brand recognition, and goodwill. This approach provides a comprehensive overview of all the resources owned by the business.
Under this approach, the business is compared to similar enterprises within the market to establish a fair value. This may involve reviewing recent sales of similar businesses and considering market trends to derive an appropriate valuation. To ensure the accuracy of financial evaluations and facilitate a just distribution of assets, parties often enlist the expertise of a forensic accountant. These professionals specialize in dissecting complex financial matters and can provide a thorough analysis of the business’s worth, as well as offer insights into potential discrepancies in financial reporting.
Yes, in cases where a business is classified as marital property, the non-owning spouse may rightfully claim a share of its value during the divorce proceedings. Furthermore, even if a business was initiated before the marriage, any increase in its value occurring during the marriage may be subject to equitable division. This consideration acknowledges the contributions made by both spouses during the marriage, particularly if the non-owning spouse played a role in the business’s growth or success.
To mitigate potential risks to their business assets in the event of a divorce, business owners can take several proactive measures:
These legal documents can explicitly outline the ownership rights of each spouse regarding the business. A prenuptial agreement is established prior to marriage, while a postnuptial agreement can be created during the marriage, addressing any changes in circumstances.
It is crucial for business owners to maintain a clear boundary between personal and business finances. This means avoiding the mingling of funds, which can complicate asset division and raise questions about the business’s classification as marital or non-marital property.
Business owners should maintain meticulous records that demonstrate the business was acquired prior to the marriage, along with detailed financial statements and ownership documents. This documentation can serve as essential evidence in divorce proceedings.
In situations where both spouses have a stake in the business, they must navigate the complexities of co-ownership during the divorce. Several potential outcomes may arise, including:
One spouse may buy out the other’s interest in the business, allowing one party to retain full ownership while compensating the other for their share.
The spouses may choose to continue running the business together post-divorce, which would require a mutually agreeable co-management arrangement.
In some cases, the couple may decide it is in their best interest to sell the business and distribute the proceeds. This option can simplify asset division and allow both parties to move forward independently. When making decisions regarding shared business assets, courts will consider each spouse’s contributions—both financial and operational—to ensure a fair division based on their joint efforts and involvement.
Illinois adheres to the principle of equitable distribution, meaning that assets are divided in a manner that is fair, but not necessarily equal. The courts account for several critical factors when determining how to divide business assets, including:
This equitable approach aims to achieve a result that acknowledges the unique circumstances of each case and honors the contributions of both spouses throughout the marriage.
When you have questions or concerns about protecting your assets from your ex-spouse, you should seek advice from one of our Cook County divorce attorneys as soon as you can. Contact Gordon & Perlut, LLC today at 312-360-0250 for more information.
(4/16/2025)