Protecting Business Interests During an Illinois Divorce: Practical Advice for Entrepreneurs

For business owners in Illinois, divorce brings unique challenges that go beyond the personal.  Illinois divorce law classifies your business based on whether it’s marital or non-marital property.  This classification can significantly impact the future of your business and your financial well-being.   However, there is no need to panic as long as you have a skilled and experienced divorce attorney to advise you and guide you through the process. In this blog, we’ll delve into the key legal considerations, including asset classification, business valuation, and strategies for protecting your business in a divorce.

Understanding the Value of Your Business

The first step in dividing a business during a divorce is determining if the business is a marital property or non-marital property. In Illinois, only the portion of the business that you started or appreciated during the marriage is considered marital property.  If a business starts before the marriage or is acquired through inheritance or gifts, it qualifies as non-marital property.  However, individual factors can influence whether a business qualifies as marital or non-marital property, or which parts of it are marital.  These factors can include:

• how exactly the business was acquired,
• the increase in value of the business during the marriage if it was acquired or started before the marriage, and
• the personal efforts of the spouse in improving a non-marital business during the marriage.

Be sure to discuss these with your attorney so they can work with you in figuring out this important first step.

The Importance of Business Valuation During Divorce

Accurately valuing your business is crucial when dividing the marital estate If the business is marital or partially marital, a business valuation is necessary to determine its exact value for property allocation.

Sometimes, you need to value a non-marital business to compare its assets with the marital estate for division.  Either way, the best way to obtain a precise and accurate business valuation is with an expert in that specific area as they are experienced at these complex valuations.

In conducting a business valuation, the expert will consider both the tangible and intangible assets of the business, the liabilities and debts of the business, and the future earning potential. Tangible assets include the bricks and mortar of the business, as well as equipment, machines, merchandise, and other physical properties of the business. Intangible assets, such as brand recognition and intellectual property, are often significant in determining the business’s value. Your attorney should be familiar business valuators in this area and can recommend someone knowledgeable and skilled to be able to appraise the business and determine its true value. Once the value is ascertained, you will be more equipped to make decisions about the allocation of the business between you and your spouse.

Your Options for Dividing a Business During Divorce

After the expert determines the business’s value, you have several options for dividing it. These include the following:

• Assign the entire business to one spouse, with the other compensated in funds or assets.
• Divide the business assets between both spouses.
• Sell the business and split the proceeds.
• Continue co-owning and operating the business as joint owners, no longer as a married couple.

One or more of these options may suit your business better than the others.  So, be sure to talk to your attorney about your options and do what is best for you.

Visit our High Asset Divorce Attorney services page to learn more

Legal Tools for Protecting Business Interests During an Illinois Divorce

Protecting your business in the event of a divorce starts with having the right legal tools in place. A prenuptial or postnuptial agreement can be invaluable in safeguarding your business interests, whether they were acquired before or during the marriage. These agreements help ensure that your business is recognized as separate property, shielding it from division in a divorce.

If you don’t have a prenuptial or postnuptial agreement, there are still proactive steps you can take. Establishing clear ownership guidelines is crucial—this includes maintaining detailed financial records and keeping your business finances separate from personal finances.  In closely held businesses, consolidating finances into one account might seem simpler, but it blurs the lines between marital and non-marital assets, creating complications during a divorce.  To avoid such issues, it’s essential to keep personal and business finances distinctly separate.

If your business is family-owned, additional considerations come into play.  Legal tools like shareholder agreements can provide an extra layer of protection, ensuring that your business remains within the family and is not vulnerable to division in divorce proceedings. For more detailed strategies specific to family businesses, explore our article on protecting the family business during divorce.

Tax Considerations for Business Owners in Divorce

At the federal tax level, assets divided or transferred as a result of a divorce are not subject to any additional federal income tax or gift tax under the tax-free transfer rule. So, transferring assets to a spouse doesn’t trigger additional federal income tax. Selling a business during a divorce to divide the proceeds triggers taxes.  Additionally, selling or transferring assets awarded in a divorce incurs normal federal taxes.

Illinois tax rules can differ from the federal tax rules. The tax basis varies between state and federal levels, which requires careful consideration.  Also, stock redemptions from a business can lead to tax consequences.

Minimize tax implications in a divorce involving a marital or non-marital business by strategizing with your attorney and accountant.

Secure Your Business’s Future

Divorce presents significant challenges when a business is involved, but the right legal guidance helps you safeguard the business you’ve built.  At Anderson Boback & Marshall, our experienced attorneys specialize in navigating the complexities of divorce for business owners. We collaborate with you and your tax professionals to create strategies that protect your business interests and ensure the best possible outcome.

Don’t leave your business’s future to chance. Contact Anderson Boback & Marshall today to get the experienced guidance and legal representation you need to secure your business during your divorce. Early action can make all the difference.

Commonly Asked Question and Answer – Protecting Business Interests During an Illinois Divorce:

How can I protect my business during a divorce in Illinois?

Protecting your business during a divorce in Illinois requires key strategies tailored to your unique situation.  First, determine whether Illinois law classifies your business as marital or non-marital property.  If it qualifies as marital, explore legal agreements like prenuptial or postnuptial contracts to safeguard your interests. Keep your business and personal financial records separate to avoid complications. Consult an experienced divorce attorney early to accurately value and protect your business assets. Anderson Boback & Marshall offers personalized advice and strategies to secure your business’s future.