What if a Business’s Value Vastly Increases During Marriage?
Posted on November 27, 2024 in Divorce
Divorce cases in which one spouse separately owns a business can create complications when the business’s value substantially increases during the marriage. While business valuations can be complex enough when the business is being divided between the spouses, a separately held business offers its own set of challenges.
One or both spouses owning a business is far from uncommon. A 2022 survey found that almost 300,000 businesses across the United States were jointly owned and operated by spouses, representing more than 10 percent of all U.S. businesses. There are no hard statistics on how many businesses are owned by just one spouse, but the number is likely just as significant.
Illinois is an equitable distribution state – meaning the division of marital assets is fair, although not necessarily equal. A spouse’s separate assets add a new layer of complexity to the issue. Separate assets often become marital assets, even when that is not the intention. If you are concerned about whether a separate asset will remain separate during your divorce, it can be helpful to speak to a knowledgeable Wheaton, IL, family law attorney from Andrew Cores Family Law Group.
A Business Started by One Spouse with an Inheritance Increases in Value Significantly During the Marriage
Suppose one spouse started a business before the marriage using an inheritance from his or her parents. This spouse is careful to keep the business separate after marriage by not adding his or her spouse’s name to any part of the business and never commingling business and marital funds. The business takes off during the marriage, and the other spouse demands his or her share of the business during the divorce. The key question here is whether the business owner’s spouse helped increase the value of the business during the marriage in any significant way.
Did the business owner’s spouse actively participate in the company? Did he or she assist the other spouse with the business? Were profits from the business considered the business-owner spouse’s contribution to the marriage in lieu of regular employment pay? Were any marital funds used to help get the business off the ground? In most cases, the non-business owner spouse will be entitled to at least a portion of the increase in the value of the business during the marriage, although the exact portion is dependent on many different issues.
A baseline estimate of the business’s worth when the couple married must be established, followed by a valuation to determine its worth at the time of the divorce. The number of years the couple has been married and whether the business owner’s spouse materially contributed to the increase in the business’s worth are also factored in. These calculations are tricky, to say the least, and must involve professional business valuators and other financial professionals.
The Value of a Business Increases Significantly Between Filing for Divorce and the Completion of the Divorce
Some divorces can last more than a year or even more than two years, depending on the level of marital and separate assets and other complex issues. During this time, many changes in business operations can occur, increasing the value of the business.
In most cases – but not all – the increase in value of separate property during the marriage is considered separate property unless both spouses are materially involved in operating the business. The business owner’s spouse must have made significant personal efforts that resulted in a substantial appreciation for the increase to be considered a marital asset.
However, if the business was founded during the marriage and was never considered a separate asset, then a post-separation increase could be considered a marital asset. The spouse arguing for a share of the post-separation increase has the burden of proof to prove the increase was due to his or her personal and substantial efforts.
Contact a DuPage County, IL Division of Assets Lawyer
If you are facing an issue with a separately held business during your divorce, the best course of action is to speak to a skilled Wheaton, IL, division of assets attorney. Your divorce attorney can help you understand which portion of the business is subject to marital division and which portion will remain yours alone. Contact Andrew Cores Family Law Group at 630-871-1002 to schedule your free consultation.
