Options for Divorcing Couples that Are Business Co-Owners
Illinois is not a community property state. When a couple divorces, marital assets are divided equitably – not necessarily equally. Determining what qualifies as marital assets and how it should be divided can be a complicated process. Divorce can be even more complex when both spouses are co-owners of a business.
Is a Business Co-Owned if It Was Started Before the Marriage?
In an equitable distribution state such as Illinois, a business might not be classified as marital property if it was established by one spouse before the marriage – but then again, it might be, particularly with no prenuptial or post-nuptial agreement specifying otherwise in place.
The business could still be considered marital property if the spouse who was not an owner contributed to the business in any way during the marriage. This may include not only direct contributions of time or marital funds, but also advice about the business or indirect contributions such as taking care of the home while the other spouse ran the business.
How Can a Business Be Divided in a Divorce?
Most businesses co-owned by spouses are considered marital property. The parties may have several possible ways to go on how to treat the family business in a divorce. Options may include:
- Continue owning the business together: This may be the least disruptive option if both parties want to continue co-owning a profitable business. It only works when the spouses can get along well together in a working relationship after divorce. There is no transfer of ownership, and the business can continue on much as it did during the marriage.
- Sell the business and divide the profits: Selling the business may be the right choice if both parties want out altogether. A valuation of the business may be needed to determine the appropriate selling price. When the business is sold, the proceeds are divided equitably between the spouses.
- One spouse buys out the other spouse’s share of the business: In some cases, one spouse wants to continue with the business, while the other wants to move on. This can be resolved in a divorce if the spouse who stays buys out the other spouse’s interest in the business. The buyout can be accomplished with cash or through exchange of other marital assets. Valuation will likely be required to determine the value of the selling spouse’s interests.
- One spouse sells his or her share to a third party: It may not be a viable option at the time of divorce for a spouse who wants to keep the business to buy out the other spouse. An alternative solution may be to sell the interests of the spouse who is leaving the business to a third party. That spouse gets the proceeds from the sale and the other spouse gets a new business partner.
How Do You Decide on Which Way to Go with a Family in a Divorce?
In a community property state, marital assets are divided 50/50 in a divorce. Illinois, on the other hand, is an “equitable distribution” state, where many factors can affect the division of marital property and debts. The process becomes even more complicated when a family business is involved. If you are divorcing and co-own a business with your spouse, it is in your best interests to consult with experienced family law attorneys to help you choose the best option for your business, and for sound legal counsel in every aspect of your divorce.
Our Chicago divorce lawyers at Nottage and Ward, LLP are focused exclusively on family law and divorce matters. We have more than three decades of experience – our firm was founded in 1988. Our attorneys specialize in resolving complex financial and custody issues. If you are facing divorce involving a co-owned business, call us at (312) 332-2915.
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