Divorce and Business Evaluations

 Posted on October 02, 2017 in Main

When you and your spouse make the decision to get a divorce, your assets must be valued in order to determine a fair split of the property you accumulated during the marriage. One of the most complex valuations you will experience is the appraisal of any business you own together. Business valuations can quickly grow contentious and accusatory, and having the right attorney on your side may make the difference between an equitable settlement and a long drawn-out battle.

Potential Points of Contention

Unless there is a prenuptial agreement governing the distribution of the business shares, a business that is determined to be a marital asset is subject to division during a divorce. When a couple has worked in the same business, it can be quite difficult to tell what effect each person has had on the company as opposed to their collective effort. One of the most common problems encountered in business valuations is the perception of each spouse and how it may radically differ. For example, one spouse may look at the business and see the worst-case scenario, while the other may see only growth. It tends to depend on who is leaving and who is staying.

There may also be the question of determining what part of the business may have existed before the marriage and thus qualify as non-marital property not subject to division. While a business may have existed before the marriage, its growth may be classified as marital property, especially if the earnings benefited the marriage. The case of In re Marriage of Lundahl from a few years ago helps qualify Illinois standards. In the case, the husband’s retained earnings from his business were deemed marital property since he was the sole shareholder and the profits from the business enriched the marriage.

Standard of Review

Equitable distribution is the prevailing standard in an Illinois divorce, even when a business is involved. The distribution will likely not be equal, but it will be equitable in that it will be fair to each party. If the husband is the majority shareholder making $200,000 per year, and the wife is the minority shareholder making $20,000 per year, a trial court may award the wife a larger share of the business as long as it is classified as marital property. Of course, the final outcome may also depend on what other assets the couple owns and in general the Court’s prefer to fully sever all business relationships between the spouses if practicable.

Occasionally, allegations of subjectivity may crop up over the question of fair market value (FMV). Most attorneys and appraisers use the definition provided by the International Glossary of Business Valuation, which defines FMV as the price “at which property would change hands between a hypothetical willing and able buyer and a hypothetical willing and able seller” without anything forcing the sale. Though it may fluctuate, FMV is not a number pulled out of thin air; it is influenced by the market price for similar holdings. Attorneys and financial professionals can arrive at an acceptable valuation and eventual distribution in the overwhelming majority of cases.

Contact a Legal Professional

If you are getting a divorce, you may feel overwhelmed by the sheer amount of information you must handle. The experienced Wheaton divorce attorneys at MKFM Law work closely with financial experts to find a solution that is both fair and reasonable. Contact us for a confidential consultation today.

Sources:

http://www.illinoiscourts.gov/Opinions/AppellateCourt/2009/1stDistrict/November/1083541.pdf

https://smallbusinessappraisals.com/what-is-market-value/