What is Involved in a Business Valuation During Divorce?

 Posted on October 31,2024 in Asset Valuation

When a married couple decides to divorce in Illinois, their marital assets are split under the rules of equitable distribution. A handful of states still operate under community property laws, which means the marital assets are split right down the middle. In equitable distribution states like Illinois, marital assets are split fairly but not necessarily equally. If either spouse owns a business, or if the couple owns a business together, there must be a business valuation in order to determine how it should be split as a marital asset.

While a business is an asset, like a home or a vehicle, it is also a source of income. If the business structure is complex, the value of the business is significant, or there is a dispute regarding the worth of the business, a professional appraisal will be necessary. A neutral appraiser must be chosen, the valuation done, and then division can occur. If you or your spouse own a business, it is important to speak to a knowledgeable Wheaton, IL complex asset division attorney from Andrew Cores Family Law Group.

Is a Business Valuation Always Necessary?

A business valuation is only necessary when the business is a marital asset. If the business belonged to one spouse prior to the marriage and no marital funds have been used for the business, or if there was a prenuptial agreement stating the business was a separate asset, then no business valuation is necessary. If, however, the other spouse worked at the business or contributed to it in some way, or if marital funds were used to keep the business going, then at least a portion of the business will be considered a marital asset, thus subject to a business valuation.

What Are the Unique Issues Associated with a Business Valuation?

A business valuation considers the following:

• A determination and valuation of all intangible assets that add value to the business, including the owner’s reputation, brand reputation, customer relationships, trademarks, patents, and other intellectual property.

• The determination of the business’s ability to generate future cash flow and earnings involves financial records, market conditions, and projections.

• How the business ownership is structured has a bearing on its value, depending on whether it is a sole proprietorship, partnership, LLC, or shareholder agreement.

• The value of a business fluctuates significantly depending on industry trends, competition, and market value.

• Whether any contracts, agreements, or legal disputes are present influences the value of the business.

• Any potential tax liabilities or benefits can alter the net value of the business.

• The valuator must distinguish between personal reputation and skills value and the value of the business itself - personal goodwill vs. enterprise goodwill.

What Are the Potential Outcomes When Dividing a Business During Divorce?

Once the business has been properly valued, the percentage of the business each spouse is entitled to will be determined. One spouse can then buy out the other’s value in the business, either through a lump sum or structured settlement. The business could be sold, and the proceeds could be divided between the spouses. 

If there are other marital assets of equal value, there could be an asset swap. If there were partners involved in the business, the outcome could look very different. If the couple were co-owners and the business was and is very successful, they may decide to continue running the business together after the divorce.

Contact a DuPage County, IL Complex Asset Division Lawyer

When you choose a Wheaton, IL complex asset division attorney from Andrew Cores Family Law Group, you can be sure your attorney is well-versed in the division of complex marital assets. Attorney Andrew Cores is a Fellow of the Collaborative Law Institute of Illinois and a past member of their TEC Committee. Our extensive business law experience allows us to easily understand the tax consequences and valuations of businesses that are part of a marital estate. Call 630-871-1002 to schedule your free consultation.