How Is a Business’s Value Determined in an Illinois Divorce?

 Posted on August 12, 2021 in Family Law

Divorce is rarely pleasant or easy, but when a business is involved, the divorce process becomes significantly more complicated. Business owners put significant amounts of their time, energy, and money into starting their business and making it successful. Beyond the general frustration at the prospect of splitting the value of a business with a former spouse, business owners must confront the challenge of determining a business’s value, including all of its debts and assets.

This article gives an overview of how the value of a business is determined for divorce purposes in Illinois, but it is not intended as a replacement for advice from an experienced divorce attorney or business valuation specialist.

How Is a Business Valued?

Illinois law dictates that either the spouses or the court will set a date upon which the fair market value of a business will be determined. Once the value is determined, the value remains the same for the purposes of the divorce proceedings. The three most common methods of valuing a business are:

• Market method - The market method uses recent sales of similar businesses to estimate the price that would likely be earned by selling the business now.
• Income method - The income method uses the business’s past tax returns, contracts, and profit-and-loss statements to assess the business’s past revenue and likely future revenue. This method may be beneficial because it allows business owners to reduce future revenue estimates based on potential risks specific to that business.
• Asset method - The asset method combines the value of the business’s assets with any debt the business has. The asset method allows business owners to consider intangible assets, such as public awareness and the business’s reputation. One potential complication of the asset method is that the book value of a business’s assets may not reflect the real market value of the business.

Many professional businesses in the area of law, medicine, or psychology derive their value from the practitioner’s reputation. Called “personal goodwill,” this value is entirely intangible and Illinois courts have ruled that it is not subject to division in a divorce.

How Can I Keep All of My Business?

Even if a business owner’s spouse was not working for the business, if the business was started during the marriage, the business will be seen as marital property and the spouse will be entitled to a portion of its value. Business owners who want to maintain full control over their business when getting divorced will have to “buy out” their spouse by giving the spouse their portion of the business’s value in other assets.

Keep in mind that the current value of the business, as well as the income of the business and its likely future growth, will be part of a judge’s determination when she is making decisions regarding spousal and child support obligations.

Contact a DuPage County Divorce Attorney

Protecting your business’s integrity is a crucial part of a divorce. Do not risk making expensive mistakes; let the experienced Hinsdale, IL divorce attorneys at Martoccio & Martoccio advocate for your interests. We have experience representing large and small business owners and will work hard to help you protect your business interests. Call us today at 630-920-8855 to arrange your confidential consultation by phone or video chat.

Source:

https://www.ilga.gov/legislation/ilcs/documents/075000050k503.htm