Divorce raises many difficult questions, but the process can be especially challenging for business owners. If you are preparing to divorce in Metro East, IL, and own a business, it’s understandable to worry about how your divorce could impact your business. Ultimately, it’s likely that your divorce will have some effect, but the extent of the effect largely depends on when you created your business and what level of involvement your spouse had in operating it.
Illinois follows an equitable distribution law for property division in divorce. When business assets qualify for division in divorce, both spouses have the right to equitable shares of the business’s value based on their levels of contribution toward running the business. If you are unsure whether your business qualifies for division in your divorce, you must consult an experienced Metro East divorce attorney as soon as possible.
When a Business Is Marital Property
Illinois’ equitable distribution law allows divorcing spouses to retain control over their separate individual property and divide their shared marital property. If you created your business while you were married, the business likely qualifies as marital property in your divorce. It’s also possible that your business would qualify as marital property even if you started and operated it yourself because of your spouse’s contributions toward helping you, both direct and indirect. For example, if they helped you qualify for financing to get your business off the ground, this would likely entitle them to some share of the business’s value in divorce. If they did not directly contribute to your business but did contribute toward running your household and helping your marriage in other ways, these contributions can also justify them to claim a share of the business’s value.
Dividing business valuation is very difficult in most cases. Unless the spouses simply want to sell the business and split the proceeds, they must resolve the issue by compensating one spouse for their share of the business. For example, if the couple started the business together, one might buy out the other’s share in the business. However, if one spouse did most of the work of managing the business, the other spouse would likely only be entitled to a share of the business’s value. It’s also possible for one spouse to still have a claim on the portion of the business’s value even if they did nothing to directly contribute to the business, but they helped their spouse during their marriage in other ways.
When a Business Is Separate Property
It is also possible for your business to qualify as your separate individual property in a divorce. However, this does not mean your spouse will not receive some level of compensation to reflect the value of the business. For example, if you inherited the business from your parents, inheritance qualifies as separate property in a divorce. In addition, if you owned the business before marrying and kept everything related to your business in your name, it might also qualify as separate property, and you would be permitted to keep and continue operating the business after a divorce.
When a business qualifies as separate property and cannot be divided, the court will still consider the business’s value and future growth during equitable distribution determination. If the spouses remained married, the non-owner would still benefit from the business’s continued success. When the couple divorces, the non-owner loses this benefit, so most judges would uphold that they should receive some level of compensation for this loss.
Ultimately, the division of business assets in divorce is incredibly complex. These situations result in liquidating the business and splitting the proceeds according to Illinois’ equitable distribution law. Therefore, if you want to protect your business from divorce, it is best to be proactive about this during the creation of your business, even if you have no idea if or when you will marry in the future.
How to Protect Your Business From Divorce in Advance
There are two main methods of protecting your business from a future divorce. The first is ensuring that every account related to your business is in your name only. If you can keep your business accounts entirely separate from your marital accounts, this will significantly streamline future divorce proceedings and potentially eliminate the need to divide business assets. In addition, if you do need to compensate your spouse in any way related to your business, keeping these separate records will be very helpful in doing so.
The other method of protecting your business in advance is creating a prenuptial contract with your spouse when you marry. A prenuptial agreement outlines each spouse’s property rights and financial obligations for their marriage. While suggesting a prenuptial contract may not be the most romantic thing you can do before marriage, it can provide a couple with an opportunity to have complex financial conversations early in their marriage, potentially bringing them closer by alleviating any uncertainty and providing financial reassurance for the future.
Resolving Business-Related Disputes in Divorce
When you and your spouse have decided to end your marriage, it’s important to consider the way you intend to resolve the dissolution process. When most people think of divorce, they imagine a court battle, but litigation should be considered last. Most divorcing couples use alternative dispute resolution to handle their divorce proceedings. For example, if you own a business, private settlement negotiation can enable you to secure a much more favorable outcome to your divorce terms than a judge would deliver. The only prerequisite for alternative dispute resolution in Metro East, IL, is that both spouses must agree to the process.
Running a business requires constant attention and multitasking every day, and the stress of a divorce can not only make it difficult to handle your day-to-day responsibilities as a business owner, but it may also cause you to worry about the future of your business. Approaching this situation alone is exceptionally challenging and unwise. You should secure legal counsel from an experienced Metro East, IL, divorce attorney as soon as possible so you can approach the situation with good information and the professional support you need.