Finding A New Path Forward

How to protect your business during a divorce

On Behalf of | Nov 10, 2023 | Family Law |

If you own a business in Illinois and are going through a divorce, you need to understand how the process can impact your enterprise.

Divorce can have significant repercussions on your business, particularly regarding the division of marital property. The hard work you put into building your company could be subject to division, affecting not only your personal finances but the future of the organization itself.

Understanding property division

Illinois courts divide property based on what they deem fair because it is an equitable distribution state. If you start a business while married, courts usually classify it as marital property. Moreover, if your spouse directly helped the business or took on household duties or child care, enabling you to focus on the business, the courts may factor in such indirect contributions when determining its status.

Valuing your business

When going through a divorce, figuring out how much a business is worth is a key step. There are three main ways to do this. First, the asset-based method adds up the company’s assets and subtracts what it owes. The market approach compares the business to similar ones, setting a value based on what others would pay. Lastly, the income approach predicts how much money the business will make in the future and then calculates what that’s worth right now. Obtaining an accurate, professional business valuation is important if you are seeking a fair outcome to your divorce.

Protecting your interests

To safeguard your business from becoming entangled in a divorce, you can take preemptive steps. Prenuptial or postnuptial agreements allow you to establish the business as separate property, preventing it from being subject to division. These arrangements have become increasingly prevalent over the years, especially among younger couples, according to 62% of family law professionals.

For businesses with multiple owners, shareholder agreements with transfer restrictions can define ownership rights and limit the transfer of shares without the consent of other shareholders. Buy-sell agreements can further protect the business by outlining what happens to a business partner’s share in the event of a divorce.

As you face the complexities of divorce, it is beneficial to proactively address the implications for your business. By staying informed and preparing yourself, you can maintain control over the destiny of your enterprise.