Dividing the Family Business

 Posted on July 17, 2018 in Business Valuation

When getting a divorce, one serious concern that will appear for those who own a family business, or a small business in general, is how to divide it, or even if division is necessary. Illinois law on the subject can get confusing, so it may be a good idea to consult an experienced attorney on the subject before moving forward with asset division.

Obtaining a Business Valuation

One of the first steps that can help a couple decide what to do with a family business is to obtain a business valuation, usually through an accountant or licensed appraiser. Without an accurate estimate of how much a business costs, one cannot accurately tell how the rest of the marital estate must be divided in order to keep a business in one piece, or how much must be offset if the business is to be sold and its profits and equity divided. There are, however, multiple different ways to accurately value a business, depending on the type of method used - the two most common in divorce-related cases are the comparable model and the asset valuation model.

Valuing a business based on comparables is fairly straightforward - one simply examines the going rate for businesses of comparable size and goodwill and acts accordingly. However, this method can be somewhat inexact simply because the average person may not be privy to internal factors affecting the value of the example business. The asset valuation model, by comparison, has a better chance to be more accurate, because the valuator assesses the business’s assets and their value is taken less the amount of debt the business owes.

Options for Disposition

Once you have a valuation for your family business, you can then proceed with marital property division. Illinois is an equitable distribution state, which means that marital property is divided equitably (fairly) rather than simply an equal split down the middle. This means that it is more likely that one spouse will be able to retain the business and its assets if they are deemed to be more in need, though they may not receive much else in the divorce if the business is assessed a high value.

Sometimes, it will be necessary to sell the business and divide the proceeds. If this does happen, it is important to keep in mind that both tangible and intangible assets need to be part of the valuation - items like enterprise goodwill, which is the ability of your business to earn future income, can be assessed as part of the marital estate along with the business. However, any personal goodwill you or your spouse earned from operating the business is personal and must remain classified as separate property.

Contact Our DuPage County Divorce Lawyers

Business valuation is only one part of asset division in divorce, though it can be one of the most difficult to understand. Enlisting an experienced attorney to help you get through dividing your marital property can be a huge help. The dedicated DuPage County asset division lawyers at Kathryn L. Harry & Associates, P.C. have experience in these cases and are happy to try and assist. Call our offices today to set up an appointment.

Sources:

http://www.dailyherald.com/business/20170906/what-will-happen-to-my-business-if-i-get-a-divorce

http://www.ilga.gov/legislation/ilcs/documents/075000050k503.htm