What Happens When Business Partners Divorce in Illinois?
DuPage County Divorce Lawyers
Spouses do not typically go into marriages anticipating the marriage will fail. Likewise, partners do not begin a business thinking that it will be anything but successful. When the two worlds collide, a divorce settlement may adversely affect the future of a business, particularly when the spouses were business partners. Understanding how to protect the most valuable asset you own as a family during divorce proceedings can help protect your finances in both the short term and in the future.
Illinois Property Division Law
Illinois law aims for equitable distribution of property between spouses in light of a divorce. Property is defined in the broad sense of both tangible and intangible property. Tangible property includes things like real estate and personal items, while intangible property is more difficult to identify and calculate. Intangible property may consist of stocks, retirement funds, or equity in a business.
Each type of property, tangible or intangible, is classified as either separate property or marital property. Separate property is whatever each spouse came into the divorce with separately. Marital property is all income, assets, benefits, equity, debt, and things acquired during the course of the marriage. Even if an asset was named only to one spouse, or a deed to a house purchased during marriage only has one spouse’s name on it, all of these assets are considered marital property because they were acquired when the couple was married for both of their benefit.
Illinois Business Valuation
Business interests can be particularly tricky in divorce settlements. If one spouse received equity in a business during the course of the marriage, the other would still have a stake in the business as part of the divorce settlement. But what if the spouses are business partners? Who gets the business and the debts, income, assets, and future associated with the business?
Ultimately, it depends. Many practical couples enter into prenuptial agreements or place buy-out clauses in their business formation documents, but this is not the norm. These protections make dissolution of marriage with business interests present much simpler, since the determination of what happens has already been made. Much more commonly, what would happen if the business partners are no longer able to amicably work together is not been addressed until it becomes an issue.
At that point, there are many options. The most important thing to do is to get a valuation of your business. A business valuation will provide the following information:
- What your business is worth at the time;
- Projected earnings of the business in the future;
- Debt realization;
- Business inventory considerations; and
- Each spouse’s respective financial interest in the business.
In a divorce, both parties may wish to get their own valuation of the business, but this can be a costly mistake. If you and your spouse can agree on one agency to conduct the valuation, you can save thousands of dollars in fees. Once you have the valuation, you can better assess how you want to proceed. Depending on the type of business formation (limited liability company, corporation, partnership, etc.), shareholders may permit one spouse to buy out the other, which works only when one spouse is willing to leave the business. This is by far the easiest solution; once you have a valuation, you know how much each spouse is entitled to based on his or her respective share of the business, and can allocate money to the individual for a buy out accordingly.
If neither spouse is willing to give up his or her share of the business, in order for the business to survive, the business must be the paramount consideration, according to Crain’s Chicago Business. The interests of the individual parties must be put aside and all decisions must be made with the survival of the business in mind. This may require that both spouses continue managing the business together — something that can become complicated among ex-spouses. However, if the business is important enough to both parties, it is possible that ex-spouses can continue managing a successful business collectively.
Wheaton, Illinois Family Law Attorneys
The last thing you want is to have both your marriage and your business fail at the same time. Understanding how you can keep your business afloat even amidst a divorce with your business partner is critical to your financial future. At Abear Law Offices, our team of experienced DuPage County divorce attorneys know how to effectively navigate a divorce settlement from start to finish, even in complicated matters involving family businesses.
At Abear Law offices, our Wheaton family law attorneys will look not only at the short-term ramifications, but will look into the future as well in determining what the best course of action is for you and your business partner(s). If you are considering divorce but have the added stress of a business to be concerned with, let us help you. Contact one of our five convenient office locations in the greater Chicago area to learn how you can protect your business during a divorce. Call (630) 904-3033 to schedule an initial consultation today.