What Chicago Residents Don’t Know About Valuing a Business in a Divorce
Uncontested Divorce Mediation
Posted May 9, 2019
Divorce is never a simple matter. Being married to another person means intertwining your lives in virtually every area. Untangling that takes time and effort. When there is a business involved, it can become a much more complicated process. Whether that business one spouse owns the business or it is jointly owned by both, there will need to be a fair division of the assets between the two divorcing parties. An experienced Chicago divorce mediation team can help guide you through the process of dividing a business in a divorce and ensuring both parties are fairly treated.
If you or your spouse own a business and are considering divorce mediation in Chicago, you should know how a business valuation happens. You should also familiarize yourself with Illinois laws governing the division of property in a divorce. This can help you make a plan for dividing your assets and avoid any unpleasant surprises down the road.
You Must Have a Detailed Analysis Of Your Business’s Value
Business owners aren’t good at determining the value of their businesses themselves. There is too much emotion involved. They may believe the business is worth more than it actually is. They may also portray the business as weaker than it is so they pay less to their spouse in the divorce. This is why Illinois state law requires that the business has an independent valuation. The business valuation expert will provide both parties with a fair and impartial assessment of the value of the business.
An appraiser will look at much more than the numbers on the bottom line. Business valuation takes into account a wide range of factors to create a comprehensive picture of the business’ health and financial value. Some of the factors that the appraiser will take into account include:
- Ability to generate income in the future.
- Strengths and weaknesses of the business.
- How it compares to other similar businesses.
- The value of the equipment and inventory held by the business.
Looking at how much the business is worth if sold or liquidated as well as how much income it could generate in the future can provide a comprehensive picture of its worth. Once you have a dollar figure in place, the divorcing parties can begin to determine what to do with the business and how to divide this important asset.
You Have Options About What to Do With Your Business
Another factor to consider is what each spouse would want to do with the business. Do you want to retain ownership and continue to run the business alone? Would you rather cash out of it and start something new?
The law cannot force you to sell your business or maintain a partnership with your ex-spouse. There are many options to consider when it comes to what to do with a business in a divorce.
- Sell it. If both spouses agree to sell the business, then the business joins other marital assets and divided accordingly. It may be easiest to liquidate smaller businesses, selling off with inventory and equipment. The remaining provide is equitably distributed between the spouses after paying the final bills.
- One partner maintains ownership. If one partner wants to keep the business and the other doesn’t, then they will need to reach an agreement about how to divide the business based on its value. More on that below.
- Both partners maintain ownership. Occasionally, neither spouse wants to walk away from the business. If the divorce is amicable, the parties may be able to reach an agreement that allows them to both continue their involvement. In these rare circumstances, you’ll want to write a new contract that outlines each spouses involvement, their share of the business, and what agreements are in place to continue joint operation.
You Must Divide the Business Equitably–Not Equally
Illinois is an equitable distribution state. That means, under Illinois law, you must divide the property that you and your spouse own equitably. It’s important to note the difference between equitable and equal here, as this doesn’t mean you have to divide everything exactly in half. Instead, you will divide the business based on the personal investment made by each spouse. That investment may be a financial one or an investment of time and energy. Equitable distribution will also take into account how much each spouse contributed to the marriage. If one spouse ran the household so the other could focus on building the business, take those household efforts into account.
For example, if you and your spouse owned and operated the business equally together, then a 50/50 split of the value may be the most equitable arrangement. However, that doesn’t mean you’ll have to sell the business or forced to remain business partners with your ex-partner. Instead, an equitable arrangement may be that one spouse receives the entire business. The other may get a cash buyout of their share of the business or receive a larger share of another jointly-owned property.
If one spouse was the primary owner and operator of the business, the same equitable rules apply. However, the other spouse’s share of the business may be greatly reduced. The more equitable split may be a smaller share of the value, which is also paid in a cash buyout or a portion of other marital property.
You and your spouse can decide what this equitable division should be during the mediation process. If you can’t reach an equitable agreement, though, then a judge will deem what’s fair on your behalf.
Need Help Valuing and Dividing Your Business in a Divorce?
Our Chicago-area attorneys and mediators can help you and your spouse determine the most equitable division of your business in a divorce. We will help you take the emotion out of the process and create an agreement that works for all parties involved.
If you are a business owner in the Chicago area and facing the prospect of divorce mediation in Chicago, get in touch with our team. We can help you take a fair, drama-free approach to divorce through our mediation process. Call us at 855-665-9920 or contact Split Simple today for a free consultation.
Split Simple
Two Prudential Plaza
180 North Stetson Avenue #3500
Chicago, IL 60601