What Is the Business Valuation Process in an Illinois Divorce?

 Posted on September 18, 2019 in Divorce

When two people decide to get a divorce, there are many issues to consider, especially if they have been together for a long time. In some marriages, a couple may have even worked with each other and started a business or professional practice together. In other cases, one spouse may have owned a company prior to getting married, but his or her partner helped run it during their union. Dividing this important asset during a divorce can often be a contentious and time-consuming procedure. Regardless of whether the business is family-owned, or if one person acts as a silent partner, each party may be entitled to part of the value of the business assets. In some cases, if the spouses cannot agree on the value of their business, they may need to go through business valuation litigation in order to receive their fair share of the marital property.

Fair Market Value

In Illinois, marital property is divided using “equitable distribution.” This means all assets obtained during the marriage must be split fairly, although not necessarily in half, or 50/50. It is important to note that asset division cannot typically be modified after the divorce.

It can be difficult to determine the fair market value of a company or a professional practice, which is the approximate amount of what the business would be worth if it were sold. During the business valuation process, each party’s attorney may work with financial experts to accurately determine what a company is worth. These experts can include financial analysts, forensic accountants, appraisers, and more.

Generally, an appraisal is required to assess the true value of a business. The value of the business can be based on different approaches, such as the following:

• Standard of value approach: Illinois statutes decide what is considered “fair value” in determining the buyout price of a business during a divorce. According to the law, “fair value” of a person’s share in a company means “the proportionate interest of the shareholder in the corporation, without any discount for minority status or, absent extraordinary circumstances, lack of marketability.”

• Income approach: Calculations are used to determine the future income stream of the business, which can then be converted to present cash dollars to determine the value of the business.

• Market-based approach: Similar to an appraisal of real estate, this approach uses comparables or “comps” in the same field or industry. In other words, an appraiser focuses on the sale prices of similar businesses, companies, or practices.

• Asset-based approach: This approach focuses on the monetary value of the business’ assets.

Financial Documentation and Intellectual Property

Looking at a business’ financial history can help in predicting the future outlook or expected performance of the company. This requires proper financial documentation, including balance sheets, income statements, and cash flow statements. Other relevant documents include recent income tax returns, accounts receivable and accounts payable sheets, customer agreements, loans, employee benefit plans, leases or property titles/deeds, and depreciation schedules.

An attorney can gather additional information about the business in preparing a valuation. “Intangible assets” are often referred to as intellectual property, such as trademarks, copyrights, and patents. In addition, the education, experience, and skill set of management personnel are important. A company with good reviews and a trustworthy reputation may be worth more than a competitor with unproven leadership.

Contact a Wheaton, IL Divorce Attorney

When going through a divorce, a couple may need to make many decisions on matters ranging from the division of marital assets to child-related issues. At the Andrew Cores Family Law Group, we understand how complicated divorces can be when a business or practice is included as part of the marital property. When determining the value of your or your spouse’s company, it is important to have the legal guidance of a knowledgeable DuPage County business valuation lawyer to ensure your rights are protected. To schedule a complimentary initial consultation, call our office today at 630-871-1002.

Sources:

http://www.ilga.gov/legislation/ilcs/ilcs5.asp?ActID=2086&ChapterID=59 http://www.ilga.gov/legislation/ilcs/ilcs4.asp?DocName=080500050HArt%2E+12&ActID=2273&ChapterID=65&SeqStart=14300000&SeqEnd=16300000