Divorces Involving Businesses

Treat Your Business Like The Valuable Asset It Is

Most courts prefer to divide a business, rather than force the ex-spouses to remain business partners. Illinois law considers your business to be just like a house, car, retirement account, or any other asset. A business may be much more difficult to value than some other items in the marital estate. There are generally three different approaches:

• Market Based: This process is similar to real estate appraisal which uses comparable properties as a guide. While the method is simple, it may inflate the value for divorce purposes, because business goodwill sometimes belongs to the business owner and is thus non-marital property. For example, The Discount Dental Clinic may have goodwill based on its name, but the business goodwill of Dr. Dan’s Dental Office is tied directly to Dr. Dan.
• Income Approach: Based on current conditions and future market forecasts, a professional appraiser estimates the business income stream and discounts that rate to account for inflation. Although the calculations themselves are quite complex, this method is preferred by many because it is relatively straightforward to work with.
• Asset-Based: While it may be ideal for a manufacturing or retail concern, this method may be inappropriate for a professional or service-based business.

Courts have a great deal of latitude when it comes to the valuation method, as long as the method considers fixed assets, non-fixed assets such as accounts receivable, business-related liabilities, and divisible goodwill.

A Divorce Does Not Spell The End For Your Business

There may not be a premarital agreement in place, especially if the spouses started the business together. In all these situations, a postmarital agreement may be an option. The courts will require all traditional elements of a contract: offer, acceptance, consideration and fairness. Some judges have looked disfavorably on buy-sell agreements and shareholder agreements; however, if the non-owner spouse is a party to the agreement, these covenants may be considered enforceable in some circumstances.