Before you and your spouse can divide property in your Illinois divorce, you will need to identify marital assets and assign a value to them. When it comes to assets such as bank accounts and homes, not much guess work is involved. However, if you and/or your spouse has ownership in a private business, matters may become more complicated.
Though dividing a private business in divorce is rarely cut and dry, it generally involves three steps: 1) Determining whether the business is “marital property,” “separate property” or both; 2) establishing a value and 3) deciding what will become of the business interests once the divorce is final. The American Bar Association explains your three options for distributing a private business in divorce.
Sell the business and split the proceeds
If you nor your spouse wants to continue the business after the divorce, the best option may be to sell the company and split the proceeds. This is a tactic the courts commonly use to divvy up large assets, such as homes and vehicles.
Though selling the business seems easiest, it does come with its fair share of challenges. For instance, you and your spouse may not agree to sell it, in which case, the judge would have to issue a court order for its sale. If you do agree to sell it, there is no guarantee that it will sell or, if it does, that you will get what you want for it. Several factors, including profitability, marketability and economic climate, can affect its desirability. You and your spouse will also have to discuss who will manage the business until you receive an offer and, when a third-party does make an offer, what figure you will be willing to accept.
Buy out the other spouse
The most popular way to deal with businesses in divorce is for one spouse to buy out the other. In some cases, the non-owner wants no part in the company. In others, such as in the case of law offices or medical practices, the non-licensed spouse cannot legally own the business. In both cases, a buyout is a no-brainer and often uncontentious.
Though the most practical decision, buyouts can only occur if the business has sufficient cash or liquid assets to distribute to the non-owner. If it does not, the owner may be able to obtain funding from a bank or lender.
The third and final option is to remain co-owners of the business. If you and your soon-to-be ex-spouse remain amicable, this solution could work. However, if your divorce is contentious and characterized by hard feelings, co-managing the company could involve emotional and psychological challenges that could, ultimately, affect the business’s bottom line.