Divorce poses several significant challenges to everyone who experiences the process, but it is especially challenging for business owners. If you own a business and are planning to divorce in Springfield, IL, your divorce proceedings could have a dramatic impact on your business operation for the foreseeable future. Depending on when you formed the business and whether your spouse had any involvement in running it, your divorce could mean the closure and sale of the business, or you may manage to preserve your business interests in one of several possible ways.
While it’s natural to want to protect your business as much as possible from your Springfield, IL, divorce case, the best methods for doing so are primarily available only at the outset of your business and before your marriage. If you started your business while married, your business would almost certainly qualify as marital property on some level. An experienced Springfield, IL, divorce attorney can provide the guidance and support you need for your unique situation, but it’s wise to understand the basics of how a divorce could affect a business.
Business Ownership and Property Division in Divorce
One of the most important and contentious aspects of divorce is property division. The divorcing spouses must complete a financial disclosure process covering all their shared and individual property. Illinois’ equitable distribution law determines how much marital property each spouse receives. While some divorcing couples settle their dissolutions through litigation, many others choose alternative dispute resolution for the many benefits it can provide. For example, if you and your spouse decide to mediate your divorce, it’s possible to reach a more agreeable set of divorce terms than what you could expect from litigation. On the other hand, if you litigate, the judge has the final say on every aspect of your divorce proceedings, and they may not see things the way you do.
Private negotiation tends to yield better results for business owners in divorce, but your negotiating position will still largely depend on how and when you started your business and whether your spouse was involved in the business on some level. In addition, Illinois’ property division law defines anything earned or acquired during marriage as marital property subject to division in divorce. Therefore, property a spouse owned before marriage or inherited from their parents would qualify as separate property, and divorcing spouses have the right to retain separate property in a divorce.
Classifying Business Assets in Divorce
A crucial step in the property division process is the characterization and valuation of all property involved in the divorce. If you own a business, your attorney can help you determine whether your business qualifies as separate or marital property. It’s important to note that if your business is your separate property, you may still owe your spouse some level of compensation for the future business valuation they would no longer have access to enjoy after divorce. When your business counts as marital property, several possible outcomes depend on you and your spouse’s willingness to negotiate.
If you and your spouse started your business together while married or as joint owners before marriage, the business is marital property. One of you can buy out the other’s share of the business as long as both parties find this agreeable. It’s also possible that the couple may need to sell the business and divide the proceeds. These situations can be very complex, and unfortunately, securing a favorable resolution may come down to nothing more than your spouse’s willingness to negotiate. If you are unsure of the best resolution to your situation, it’s best to consult an experienced divorce attorney who understands the unique issues your business ownership poses in divorce.
When divorcing couples settle property division privately and business ownership comes into play, the most common solution is for one spouse to compensate the other in exchange for sole ownership of the business. For example, if you owned your business but your spouse regularly contributed to running the business and improving it throughout your marriage, they have a valid claim to a portion of its value. You may choose to part with a more significant share of other marital property to account for this if they find this solution acceptable.
How to Proactively Protect Your Business
If you are unmarried and starting a new business, or if you have already run your business on your own for some time, it’s essential to take proactive steps toward protecting your business in the event you later get married and then get divorced. One of the best things you can do to firmly establish your property ownership rights over the business is to keep every account related to the business in your name. Then, if you later get married, do your best to prevent the intermingling of your business assets and shared accounts with your spouse.
You can also protect your business with a prenuptial contract. Many marrying couples draw up prenuptial contracts to define their respective financial rights and obligations during their marriage. You could tailor your prenuptial contract to outline each of your responsibilities for certain expenses and debts. You can also develop a postnuptial clause pertaining to your business. Essentially, you would need to carefully outline what level of involvement your spouse may have with your business, if any, and then develop terms that dictate your respective ownership rights over the business if you and your spouse divorce in the future.
Ultimately, the best asset you can have on your side during a divorce of any kind is legal representation you can trust. Whether you had the foresight to protect your business from property division in advance of your marriage or you’re struggling to determine the best way to preserve as much of your stake in the business as possible in divorce proceedings, the right attorney can make a tremendous difference in the outcome of your divorce. If you have concerns about how your impending divorce will affect your business in Springfield, IL, consult an experienced divorce lawyer as soon as possible.