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Valuing and dividing a business in a divorce

On Behalf of | Jan 24, 2023 | Divorce |

Businesses are quantifiable assets in an Illinois divorce subject to equitable distribution.

First, the court will require the valuation to determine how to divide the business, especially if liquidation is necessary.

How do you value a business for a divorce?

In Illinois, there are three common approaches to valuing a business for a divorce:

  1. Add up the value of assets owned by the business and subtract outstanding debts.
  2. Look up recent sale values for comparable businesses in your area.
  3. Evaluate the business’s financial statements, estimate future earnings, and reduce them based on potential risks for the industry.

Businesses based on the owner’s skills are typically not subject to division. For example, medical practices and skilled trades, such as carpentry or stone masonry, are not transferrable.

When is a business separate property?

Separate, or non-marital, property remains with the spouse who took ownership of it before the marriage. For example, if one spouse purchased the building for the business prior to marriage, they would likely retain that property.

When is a business marital property?

Starting a business before marriage does not constitute labeling it separate property. For example, an increase in the business building’s value after marriage would be marital property. Any business interests or assets acquired during the marriage are marital property as well. The court also considers any personal effort from a spouse to the business after marriage.

As with all divorces in an equitable distribution state, the court will consider pre-nuptial agreements first and uphold those terms as long as they do not violate any laws.