Steps to Take to Avoid Losing your Business as a Result of your Divorce
If you own a business and are facing a divorce, you have reason to worry, as the stakes can be high. If you aren’t careful, you might wind up having your ex as a business partner, or even worse, you might have to sell the business to raise cash.
The divorce rate is high in the United States. According to a 2010 report by the National Marriage Project at the University of Virginia, 40 to 50 percent of all first marriages end in divorce, and the rate is even higher for second marriages. If you got married years ago and your business was worth $20,000, but now it’s worth $2 million, there’s a lot to lose. Dividing up personal assets is difficult enough, but when the business is involved, it pays to seek legal assistance.
The experienced and skilled Illinois divorce attorneys at Wolfe & Stec, Ltd. understand that divorce becomes much more difficult when dealing with the complexities of trying to protect your business. We can provide professional guidance to examine your situation and offer specific strategies to protect you, your children and your business before, during and after the divorce process. We offer a free consultation to discuss your options to make sure you do whatever is possible to retain your business and other marital assets.
Illinois Law
Illinois is an equitable distribution state, which means that the courts consider many factors in dividing marital assets, instead of just splitting everything in half. The value of the business is included in this division.
Illinois law requires a detailed analysis of the business to determine its monetary value. Considerations include the strengths of the business and whether it was started before or during the marriage. In addition, there are variables such as salaries and deductions, whether family members are paid on or off the books, and whether profit information has been downgraded or exaggerated. To arrive at a true business value, it is essential to get help from an independent business valuation professional and to have an attorney on your side.
Strategies
The following are some strategies you can consider to help hold on to your company:
1. Get a pre- or post-nuptial agreement.
It may be too late now, but it is a lot easier if you have a pre-nup that designated who gets in the event of divorce. If you owned the business before you married, it should be listed as your individual property and not be considered a marital asset.
If you didn’t get a pre-nup, you should try to get a post-nuptial agreement that states the business is yours, before the marriage disintegrates. Post-nups may not stand up in court, and if the business was started during the marriage, it will probably become part of the assets you will have to divide.
Another possibility is to create a buy-sell agreement that states what happens to your business should any owner’s status change, including in a divorce. For example, agreements could give you the right to buy at a preset price whatever part of the business your ex is awarded.
2. Ease your spouse out of the business.
If it’s too late for agreements, see if you can fire your ex or lessen his or her business role. The more your ex is involved in the business, the stronger the case that he or she helped build it and should profit from its growth.
3. Take a good salary.
Money taken in salary becomes yours instead of remaining as part of the company’s assets.
4. Place the business in a trust.
You will no longer personally own your business, so it shouldn’t be counted as a marital asset.
5. Keep the family’s finances separate from business finances.
Don’t use personal money to buy things for the company.
6. Keep good records and have a plan.
Speak to your accountant and find out what your numbers and assets really are. Have your paperwork in order before you go to your lawyer or get a business valuation. Do not negotiate until you know your personal and business values.
7. Get a fair business valuation.
Use a neutral, court-appointed valuation professional. In Illinois, there are several methods used to determine the monetary value of a business. Determining the best one depends on factors such as the size and type of business and whether one or both parties will stay with the business after the divorce. Financial experts commonly incorporate multiple methods when establishing value, particularly in more complex situations. Have a second opinion from another outside party to review the figure before you agree to it.
8. Make any payments over time.
If you have to buy your spouse out of the business, arrange to do so gradually. Monthly payments can come from the business’s cash flow or a bank loan.
9. Keep communication open.
It’s better to have a civil relationship when negotiating a business deal with your divorcing spouse. Keep your end goal in mind and know which battles are worth fighting and when to walk away.
10. Decide which way to go.
After the business is valued and everything is considered, you need to decide on what course of action you and your ex want to take. Decide whether:
- You can both continue working in the business with a new business contract, or
- The business will be sold and the proceeds divided along with other marital assets, or
- One spouse will own the business and compensate the other as part of the property settlement based on Illinois equitable distribution law.
Get Help – Contact Us For a Free Consultation
Every divorce is unique, as is each business situation, so it is most important is to have a seasoned divorce attorney who has your best interests at heart. The skilled Illinois divorce attorneys at Wolfe & Stec, Ltd. have extensive experience with business during divorce and have helped countless families in similar situations. We will fight to protect your spousal rights and business and personal assets, and we will guide you through each step of the divorce and post-divorce period.
For a free initial consultation with an experienced and compassionate DuPage County divorce lawyer, contact us online or call 630-305-0222.
