Determining the Value of a Family Business in an Illinois Divorce

 Posted on December 06, 2016 in Asset Division

Although child custody is often the most contentious issue in an Illinois divorce, in some cases, it is a family business that causes the most headaches. When the divorcing spouses work together in the business, it can be especially difficult to amicably untangle the professional relationship. The spouses may not even be able to agree on fairly basic issues such as how much the business is worth.

Court Rules Husband Entitled to New Hearing on Business Worth

Here is a recent example. A married Illinois couple started a painting business. They incorporated the business with the wife having 51 percent ownership, with the husband controlling the remaining 49 percent. At the time divorce proceedings began, she was the corporation's president, and the husband served as chief financial officer.

Initially, the couple used collaborative law to resolve their issues without the need for litigation. When this process failed, the wife sued for divorce. In her capacity as president of the business, she also placed her husband on paid “administrative leave.”

Both parties retained experts to value the business. The wife's expert valued the business at approximately $1.1 million as of 2011, when the wife filed for divorce. The husband argued the company's value was much higher–more than $5 million as of 2013, just before the divorce case was scheduled for trial. The husband's expert did not testify at trial, however, because the judge barred it at the wife's request. She said the husband failed to provide copies of the expert's report and opinions before the close of discovery in the case.

On appeal, however,, the Illinois First District Appellate Court said the judge was wrong to exclude the husband's expert. The appeals court said it was the wife's fault the husband missed the discovery deadline. Specifically, the wife failed to provide all of the business financial documents requested by the husband until just before trial. The Appellate Court said this “lack of diligence” prejudiced the husband's case, and, at a minimum, the trial judge should have extended the time for discovery.

As a result of the judge's error, the business was valued solely on the testimony of the wife's expert, which, as noted above, was based on information that was several years old. The First District therefore returned the case to the trial court with instructions to allow both parties' experts “to present evidence to aid the court in determining the value of [the business] on the date of [divorce].”

Need Help From an Illinois Divorce Lawyer?

Assessing the value of a business or professional practice is not a simple matter, especially in a contested divorce. An experienced DuPage County divorce attorney can help ensure your interest in a family- or spouse-owned business is protected. Contact our offices today if you would like to schedule an appointment with a qualified lawyer.

Source:

http://www.illinoiscourts.gov/Opinions/AppellateCourt/2016/3rdDistrict/3150238.pdf