What Happens When Business Partners Divorce?

DuPage County Divorce Lawyers

MaritalDivorce proceedings require that all marital property be divided equitably between the parties upon divorce. What does "equitable" mean? What is considered "marital property?" Rich or poor, children or not, divorce impacts all people significantly in different ways. One unique situation that some divorcing couples must face is division of a very important part of their lives—their business.

Illinois Marital Property

Marital property, under Illinois law, includes nearly all income, debt, assets, accounts, real property, and personal property obtained during the course of the marriage, even if the property was only issued to one of the spouses. Property acquired prior to marriage and certain testamentary gifts are exempt, but other than that, all equity in homes, balances in 401(k) accounts, and interests in businesses are fair game. If you and your spouse formed a business together, but are now getting divorced, what should you do?

Though everyone's circumstances and interests are going to be different, most people choose to either:

  • Sell the business and divide the proceeds equitably;
  • Have one partner buy out the other partner;
  • Have the other partners (if there are more than one) buy out one of the partners; or
  • Maintain an interest in the partnership, despite the divorce.

The last, of course, would be the easiest. However, many divorcing couples opt to remove themselves from their business in order to move forward with their lives. Consider, however, that many businesses have more than two people; they may be formed as corporations or limited liability companies that have certain rules in place for how to buy/sell interests in these companies. Your decision may affect other officers, members, or shareholders, depending on the formation of your business. There may be limitations regarding the sale of your shares or interest—again, it depends on the type of business and what the governing documents allow. Finally, consider that a business may also have been formed in succession of a family business that has strong ties to one, but not necessarily all, participants in the business. Each of these circumstances may drastically change your options when it comes to selling your part of the business. In order to accomplish any of the above remedies, however, you must receive a business valuation.

Business Valuation

It would be difficult to sell a company, offer to buy out another partner, or understand what your options are without knowing first what your business is worth. There are experts that examine the earnings, losses, taxes, accounting, and projections regarding a company to determine its overall value. Businesses that have been in existence for longer periods of time are typically easier to value, while newer businesses have less information to go off of, requiring some speculation into projected earnings, capacity for growth, and market projections.

Getting your business valued is generally the first step in dividing partnership interests upon divorce. However, once the business is valued, you still need to determine how you will accomplish the division. What is best for you depends on your unique circumstances. If you do not want to give up your interest in the business is there any way you can maintain a business relationship? If not, how will accepting proceeds from a business sale or buy out affect your divorce settlement? These questions require answers from experienced family law attorneys that understand how to negotiate a division of marital property in our clients' best interest.

Wheaton, Illinois Family Law Attorneys

Equitable division of marital property, contrary to popular belief, does not mean 50/50. It generally means to divide the property in a way that is fair, considering who contributed to the assets, business, and finances, as well as considering the agreements pertaining to future spousal maintenance or other payments. Selling a business is just a part of the division of marital property—there are many other aspects to consider.

Selling your stake or being bought out may have significant tax consequences for you and/or your spouse or other unintended consequences, and the assistance of an experienced DuPage County marital property division attorney is crucial to help identify these risks. At The Stogsdill Law Firm, P.C., we make sure that all of our clients understand the risks and benefits of their decisions regarding their business interests. We strive to protect your assets, while ensuring that you get what you deserve out of your property settlement. To learn more about business valuation or property division during divorce, contact our Wheaton, Illinois office at (630) 462-9500 today.