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posted on 3/27/22

When it comes to divorce, there are so many things to consider. One thing that many people worry about is how their assets will be distributed and whether they will lose their home or other property. However, many people do not even consider that their businesses could come into the realm of assets that are distributed between them. If you or your spouse own a business and you are contemplating divorce, it is important to consult with an attorney as soon as possible to determine how a divorce could impact ownership and how best to protect your interests or get your fair share. While every case is different, we will review some basic principles here.

Is Your Business Marital Property?

The first step in distributing assets in a divorce is determining what assets are independently owned and which are community or marital property. This is a critical step because only assets that are deemed marital property can be distributed in the divorce. This means that if you have a business or other piece of independent property that you want to protect, the best way to do that is by fighting to ensure that it is classified as independent property. This can become complicated with businesses. If you started your business prior to entering the marriage, it may be presumed to be independent property. However, if your spouse was involved in running or helping with the operation of the business, or if personal assets were ever intermingled with business assets, it may be treated by marital property. This could be the case if money from your joint checking account was used to pay a business expense, or if a payment for the business was first deposited into a joint checking account. For this reason, the designation of independent versus marital property is not always straightforward when it comes to a business, and it is important to involve a lawyer to protect your interests.

Effect of Type of Business on Divorce Valuation

If the business owned is a corporation, it is relevant to the valuation because it is subjected to double taxation. Corporation-owners are taxed on the value of the business as well as on the dividends or earnings, which count toward their income. That also means that their income and assets will be affected in reaching a divorce settlement. S-Corps avoid this double-taxation issue. Even if you or your spouse only own a share of a corporation, that share may be considered marital property and its valuation can become relevant in the allocation and equitable division of assets.

Business Valuation for Our Model Family

The husband in our model family owns a successful electrical engineering business that he built up over the course of his marriage. The first inquiry we must make is whether the business was created before or during the marriage. If he started the business before the marriage, it is more likely to be considered independent property. If he started the business after the marriage or there was any intermingling of funds, the business may be considered marital property.

Contact Glasgow & Olsson Today

If you are contemplating divorce and own or believe you are entitled to a share of a business, contact the experienced divorce attorneys at Glasgow & Olsson located in Schaumburg, Illinois, today to schedule a consultation.

Link to part 1 of the series The Model Family