What Happens when Business Partners Divorce?

Naperville Divorce Attorney

When a couple divorces, their assets are divided according to the doctrine of equitable distribution, which means that each partner receives a share of the couple's marital assets based on his or her contributions to the marital pool and his or her personal needs. When one or both of the spouses is a small business owner or a partner in a professional practice, accounting for this source of income can be tricky, because operating a small business or professional practice does not have the same stability as a traditional job. It also requires a greater investment from the business owner or partner. Unlike a job, which is merely a source of income and employment benefits, a small business is an entity unto itself. It has assets and debts of its own that determine its value, which must be considered when dividing the business or share of a business between divorcing spouses.

What if My Spouse Is My Business Partner?

If you run your business with your spouse, you will need to work with your spouse to determine what to do with the business after your divorce. Some divorced couples choose to continue to run their businesses solely as business partners. Even if you choose this route, you will need to work with your lawyer and the court to determine each partner's share of the business' debts and assets. In other cases, couples opt to either sell the business or have one partner buy out the other's interest in it, both of which require the business to be appraised to determine its true fair market value.

Valuing a Share of a Business

If you are simply a partner in your business, you will need to have your share of the business appraised to determine how to divide it in your divorce. There are a few ways to value a business. In most cases, a professional business appraiser will need to be brought in to conduct the appraisal. There are three ways a business can be appraised:

• The Market Approach. With this approach, the recent sale prices of similar businesses are used to determine a fair sale price for the small business being divided. Typically, this approach is used in scenarios where the couple plans to sell the business;
• The Asset Approach. The asset approach considers only a business' assets and liabilities when determining its value. These include business equipment, liquid cash, and its debt. The business' "goodwill," its value as a member of the community, and the value of its name within its market may also be considered as part of an asset-based appraisal; and
• The Income Approach. With this approach, the business' projected future income is considered as the main tenet of its value. The income approach values a business' historical income levels and its income potential over its actual assets and liabilities. For couples considering having one partner buy out the other's interest in a small business, this approach may be used.

Planning for your Financial Future as a Divorced Business Owner

Anybody who is going through a divorce, business owner or not, should keep his or her financial life after the divorce at the forefront of his or her mind throughout the process. Maintaining an updated, accurate inventory of your debts and assets and having a balanced budget are two ways to make the transition to life after divorce as painless as possible. Do not use your business as a way to hide assets in an attempt to avoid paying or reducing your spousal maintenance or child support payments. Not only is this unethical, it can backfire and, potentially, result in criminal charges against you.

Live a financially conservative lifestyle in the months that follow your divorce to protect yourself from going into deep debt. Consider downsizing your home, foregoing certain unnecessary purchases, and, most importantly, avoid relying on credit cards. If you were covered by your spouse's health insurance policy, consider extending it under COBRA for 36 months following your divorce if you cannot purchase your own policy right away. While you receive these benefits, search for a health insurance policy of your own.

Work With an Experienced Naperville Divorce Attorney

Divorces can sometimes be complex. When a small business is part of your marital estate, your divorce can become considerably more complicated. Work with an Illinois divorce lawyer who has experience helping small business owners and partners work through their divorces without sacrificing their income. To learn more, schedule your initial legal consultation with a member of our DuPage County family law firm. Call Pesce Law Group, P.C. at 630-352-2240 today.