How are Business Assets Divided in Divorce?
If you are a business owner who is going through a divorce in Illinois, you may be wondering about the division of assets. How are business assets divided in divorce? Illinois is an “equitable division” state. This means that assets are divided fairly, not necessarily 50/50, but taking into account all of the spouses facts and circumstances. Some assets are easy to divide equitably. Businesses and business assets pose more of a challenge. The skilled family law attorneys at Conniff & Keleher explore how business assets are divided during a divorce in Illinois.
Business assets include far more than ownership shares. In an Illinois divorce, business property can also include equipment, contracts, intellectual property, customer lists, accounts receivable, and even the goodwill of the company. Courts evaluate both tangible and intangible business components when determining their value and how they should be divided.
Because many Illinois businesses grow over time, courts also look closely at when the business was formed, how it was funded, and whether marital labor or marital money contributed to its increase in value.
Is a Business Marital Property?
When is a business considered marital property? If the business was started after the marriage, the business is considered marital property, unless specific steps were taken from the outset to separate the business legally from the marriage. Also if the business was started prior to the marriage with funds from joint accounts, it may also be considered marital property, again, unless steps were taken prior to the marriage to separate the business from the marriage.
Unless the spouses can reach an agreement as to whether or not the business is marital property, it is up to the court to decide.
Common scenarios where a business may be considered as partially or fully marital property include:
• A business started before marriage but expanded using marital funds
• A spouse contributing labor, management, or unpaid work to the business
• Using joint accounts to cover business expenses or debt
• Adding a spouse to business ownership documents
• Refinancing business loans during the marriage
The court will use Illinois Marriage and Dissolution of Marriage guidelines to distribute business assets and consider the following factors:
- The financial health and income of each party
- How much each spouse contributed to the business
- Whether either spouse made contributions to the marriage as a homemaker
- Length of marriage
- Whether or not either spouse attempted to disperse or waste any marital assets
- Whether a spouse contributed to the acquisition of the business
- Tax consequences due to the division of property
- The property value assigned to both parties
- The economic circumstances of each spouse before and after the business or property division
- Whether or not the division is part of spousal maintenance
In most cases, the court will require a formal business valuation. A qualified appraiser may use one or more approaches — income-based, asset-based, or market-based — depending on the type of company. Business valuation can significantly impact the final division of marital property, especially for closely held companies or professional practices.
How Do I Protect My LLC from Divorce?
A common question asked by business owners is, “How do I protect my LLC from divorce?” It is possible to protect your business with a valid prenuptial agreement or a postnuptial agreement. If you plan to do so, it is important to consult an attorney to ensure that the appropriate disclosures are made. You may also want to have a valuation of the business performed by a qualified business appraiser. Significantly understating the true value of a business could lead to the agreement becoming invalidated.
If you acquired a business using premarital, inherited, or gifted funds, it is important to have documentation showing the source and value of those funds. This will prevent a spouse from arguing that marital funds were used.
If you own an LLC, keeping financial boundaries clear is essential. Avoid paying personal expenses from business accounts, maintain updated operating agreements, and document all capital contributions. These steps help prevent a spouse from arguing that the LLC became marital property through commingling or marital contributions.
Frequently Asked Questions About Dividing Business Assets in an Illinois Divorce
A business is marital property if it was created or substantially developed during the marriage. Even businesses formed before marriage may have a marital component if marital funds, labor, or strategic contributions helped it grow.
Illinois courts evaluate corporate assets using equitable distribution, which considers both spouses’ contributions, tax consequences, and the overall economic picture. Corporate assets may include real estate, equipment, contracts, accounts receivable, and goodwill.
Possibly. If the LLC is marital property — or contains a marital value portion — the spouse may have a right to financial compensation even if they are not given ownership.
Courts typically require an accredited appraiser to analyze revenue, assets, liabilities, and market conditions. For service-based or professional practices, personal and enterprise goodwill may also be evaluated.
Courts aim to preserve the viability of the business. Often, the business is awarded to one spouse while the other receives an offset in assets or compensation.
Navigating business ownership during a divorce can be complex, especially when valuation disputes or non-marital claims arise. Working with an attorney who understands both Illinois divorce law and business structures helps protect your long-term financial interests.
Contact Conniff & Keleher, LLC to Set Up a Consultation
If you are looking for assistance in setting up a prenuptial agreement or a postnuptial agreement, or in navigating the divorce process, we encourage you to set up a consultation with Conniff & Keleher, LLC. We’re here to guide you every step of the way and answer your questions, such as, “Does having a new partner affect a divorce settlement?” Contact us today.
