How Are Business Interests Valued and Divided in Divorce?

When a marriage dissolves, dividing assets can be a complex process, but few assets present as many challenges as a business. Whether one spouse owns a professional practice or both partners built a company together, determining the value and future of that business is a critical component of the financial settlement.

Understanding business valuation is not just about putting a price tag on a company; it is about ensuring that both parties receive a fair and equitable share of the marital estate. Without a proper valuation, one spouse could walk away with significantly less than they are entitled to, while the other might face an unmanageable financial burden.

The Complexity of Business Structures

Not all businesses are treated the same in an Illinois divorce. The approach to valuation often depends on the type of entity involved.

• Professional Practices: For doctors, lawyers, or accountants, the “goodwill” of the practice, its reputation and client loyalty, can be a major factor in its value, separate from tangible assets like equipment or real estate.
• Closely Held Corporations: In family-owned businesses where stock is not publicly traded, determining value requires a deep dive into financial records, as market value is not readily available.
• Sole Proprietorships: These may seem simpler, but commingling business and personal funds can make it difficult to disentangle marital assets from business assets.

The Role of Expert Valuations

Unless the business is very small or the spouses agree on a value, hiring a financial expert is usually necessary. A forensic accountant or business valuator will analyze the company’s financial health to provide an objective value.

These experts look at several factors:

• Fair Market Value: What a willing buyer would pay a willing seller on the open market.
• Asset-Based Approach: Calculating the net value of the business’s assets minus its liabilities.
• Income Approach: Estimating the business’s value based on its ability to generate future income.
• Market Approach: Comparing the business to similar companies that have recently been sold.

Navigating the Division Process

Once a value is established, the next step is division. It is rare for a court to order a business to be sold and the proceeds split, as this destroys the income stream for the operating spouse. Instead, attorneys typically negotiate a solution that keeps the business intact while compensating the non-owner spouse.

Common methods for division include:

• Buy-Outs: The spouse who keeps the business buys out the other spouse’s share, often by trading other marital assets like the family home or retirement accounts.
• Structured Payments: If there aren’t enough liquid assets for an immediate buy-out, the owning spouse may make a series of payments over time.
• Co-Ownership: In rare cases where spouses part amicably, they may choose to continue owning and operating the business together, though this requires high levels of trust and communication.

Protecting Your Financial Future

Navigating the division of business interests requires strategic planning and precise legal knowledge. At WARD FAMILY LAW, LLC, we work to ensure that every business interest is accurately valued and that your financial future is protected. Whether you are the business owner or the spouse entitled to a share of its value, we are dedicated to securing an equitable outcome that allows you to move forward with confidence. Contact us for help today.