Divorce can be challenging for anyone, but it becomes even more complicated when a small business is involved. Business owners often worry about whether their company will be divided, how its value will be determined, and whether they will still have control after the divorce.
Illinois follows equitable distribution laws, which means marital property is divided fairly but not necessarily equally. If a business is considered marital property, it may be subject to division. The classification of the business, its valuation, and whether a spouse has a financial interest in it all play a role in how the court handles the issue. Understanding how Illinois law applies to small businesses in divorce is essential for protecting financial interests and planning for the future.
Whether a business is classified as marital or non-marital property depends on several factors. Under 750 ILCS 5/503, property acquired during the marriage is generally considered marital property, while property acquired before marriage is considered non-marital. If a business was started before marriage, it may remain non-marital, but any increase in value during the marriage could be considered marital property. If both spouses contributed to the business financially or through labor, the court may consider it marital property, even if only one spouse is listed as the owner.
If a business is subject to division, determining its value is a critical step. Illinois courts rely on various valuation methods, including asset-based valuation, income-based valuation, and market-based valuation. The court may appoint a financial professional, or each spouse may present their own valuation expert. The value assigned to the business can impact how other marital assets are divided.
Once the value of a business is determined, there are several ways it can be handled in a divorce:
Business owners can take steps to protect their company in the event of divorce. A prenuptial or postnuptial agreement can specify how the business will be handled. Keeping business finances separate from personal finances and maintaining clear records can also help establish whether the business is non-marital property. In some cases, business owners use buy-sell agreements to set rules for ownership changes in the event of divorce.
Not necessarily. Illinois follows equitable distribution, which means assets are divided fairly but not always equally. If the business is considered marital property, the court will determine a fair way to divide its value, which may not mean a 50/50 split.
If the business was established before marriage, it may be considered non-marital property. However, if the business increased in value during the marriage, that increase could be considered marital property and subject to division.
Yes, if marital assets were used to support the business or if the business’s value increased due to efforts made during the marriage. Even if a spouse did not work directly in the business, they may still have a financial interest in it.
A prenuptial or postnuptial agreement can outline how the business will be handled in divorce. Keeping business and personal finances separate and avoiding the use of marital funds to support the business can also help.
If both spouses own the business, the options include one spouse buying out the other, selling the business and splitting the proceeds, or continuing to co-own the business after divorce. The best option depends on financial circumstances and the ability to work together.
The court may use an asset-based, income-based, or market-based valuation to determine the business’s worth. Financial professionals may be brought in to provide a valuation report.
Yes, if you want to keep the business, you can negotiate a buyout by giving up other assets of equal value. This allows one spouse to retain full ownership while the other receives fair compensation.
Selling the business is only one option. If one spouse wants to keep it, they may negotiate a buyout. In some cases, former spouses agree to continue co-owning the business.
A divorce can impact business operations, especially if both spouses are involved in management. Having a clear legal agreement in place can help ensure the business continues to run smoothly.
If your business is your main source of income, the court will consider this when dividing assets and determining spousal support. Keeping financial records and obtaining a fair business valuation is essential.
If you own a small business and are facing divorce, protecting your financial interests is critical. The attorneys at Gordon & Perlut, LLC understand the complexities of business division under Illinois divorce law and can help you find the best solution for your situation. Whether you need to negotiate a buyout, determine the value of your business, or protect your financial future, we are here to help.
If you’re facing divorce, contact our Chicago divorce attorney at our Chicago office at 312-360-0250 or our Skokie office at 847-329-0101 to arrange a free consultation. We represent clients throughout Illinois.