Should I Accept My Husband's Value of Our Family Business in Our Divorce?

business value in divorce, DuPage family law attorneyMy husband wants me to agree to his accountant's valuation of the business he started up during our marriage. He says this will save money on attorneys fees and quickly settle our Illinois divorce, should I agree?

In high income or high net worth cases one side or the other may attempt to persuade their spouse to agree or "stipulate" to the value of a "marital business." Many times a high income or high net worth spouse will use various techniques of persuasion or threats including such statements as:

  • The business has no value since it cannot be sold.
  • The actual business value resides in the personal goodwill I have created so that if I left the business it would have no value since the customers would only deal with me.
  • The debt exceeds the value of the physical assets and therefore the business has no value or a limited value.
  • I will simply close the business and you will receive nothing.

These attempts at persuasion may or may not convince the other spouse. The object of the game is to avoid having an expert evaluate the business and determine the present fair market value of the marital portion of the business so that you as a spouse can receive your fair share.

While agreements are good in a divorce and stipulations to speed things up can also be helpful they are often pitfalls for the unwary.

In practice, an agreement or stipulation of value of the marital business gives the agreeing spouse almost no right to come back and claim that the value of the business was misrepresented or undervalued. In Illinois, divorce courts will generally enforce Marital Settlement Agreements, even when the actual value of the business is less than its fair market value without the contesting spouse showing that there was actual fraud by the business owner spouse. A Marital Settlement Agreement in a Judgment of Dissolution of Marriage is a binding contract between spouses and more than that, the final and complete court order that is the case.

There are no comebacks or do overs should you experience "buyers remorse" and discover that your ex spouse lied to you about the value of the marital business. You are bound to exercise due diligence through the use of the "formal discovery" process in Illinois to determine the value of the marital business. In addition you are bound by not only what you were told by your spouse but what you could have discovered by the use of these discovery tools including written questions to your spouse and third-party individuals such as accountants, oral depositions in the use of experts such as accountants or this is a valuators to determine objectively the fair market value of the marital family business.

A recent Illinois case illustrates this point. In re the Marriage of Bloom, the Wife used formal discovery including taking depositions and hiring an expert to determine the value of the Husband's business. Her expert believed the Husband's statement that his business could not handle more than 50 clients since it all depended upon his personal relationship with the clients. The Husband testified that the business was therefore not "scalable" to include more than 50 clients. The Wife's expert believed him and reduced his value of the business by 70% to $1,193,000.

The Husbands's expert testified the business was worth $183,000. Almost at the time the parties were divorced the Husband began to negotiate to sell his business, By the time the Husband was divorced in less than three months he had sold his business to NASDAQ for $19,000,000. The Wife finally did receive her fair share of the actual value of the business but only after several years of a Court proceedings through the Appellate Court of Illinois. The Wife won because she did go through "Formal discovery. " The Wife conducted her due diligence.

Contrast this case with the February 2, 2015 case, In re Marriage of Lyman, after their judgment of dissolution was entered based on a written Marital Settlement Agreement, the ex-wife about a year later filed petitions claiming her husband had defrauded her and breached their Marital Settlement Agreement. The ex wife stated that she had discovered recently that her ex husband had concealed three assets worth nearly $2,000,000.

The Appellate Court ruled in favor of the ex husband and found that Res judicata applies to judgments of dissolution of marriage and to matters which could have been decided, such as ex wife's claim that she did not receive her fair share of final distribution. The ex Wife failed to exercise due diligence when she decided to accept the ex husband's representations in his written and oral disclosures of his finances over her opportunity to engage in formal discovery.

If you need help from a DuPage County family law firm, contact Martoccio & Martoccio at 630-920-8855 for a free consultation.

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