Navigating Divorce as a Business Owner: Key Strategies and Insights

Divorce is often seen as one of life’s greatest challenges, and for business owners, it can feel like navigating uncharted waters. The stakes are often high as your livelihood, your assets, and your future are all on the line. But with the right preparation and a skilled attorney by your side, you can confidently protect both your business and your peace of mind during the divorce process. Not only is preparation important but strategy is essential.

Key Considerations for Business Owners in Divorce

1. When Was the Business Established?
One of the most important factors to consider is when the business was acquired or incorporated. Generally, assets obtained during the marriage are presumed to be marital property. If the business was started during the marriage, it is likely to be considered marital property unless specific exceptions apply. For example, a business inherited during the marriage may be classified as non-marital and excluded from division of the marital estate.

2. Contributions from Each Spouse
Another crucial factor is the role each spouse played in the business. If one spouse started and grew the business while the other primarily managed the household or raised children, the second spouse could argue for a contributory share of the value of the business. Courts in Illinois may opine that supporting the household and children enabled the first spouse to dedicate time and energy to the business.

Can a Prenuptial or Postnuptial Agreement Help?

Yes, prenuptial and postnuptial agreements can be invaluable for protecting a business in the event of a divorce. A prenuptial agreement, signed before marriage, outlines how property and debt will be divided. Similarly, a postnuptial agreement that is properly drafted after the date of the marriage, with consideration will serve the same purpose.

For example:
• A prenuptial agreement may specify that the spouse who founded the business retains 100% ownership in a divorce and upon death.
• A postnuptial agreement likewise may be used to clarify how the business will be handled in case of divorce and upon death.

These agreements can also include provisions that evolve over time, such as granting the non-owner spouse consideration, funds or other assets after a set number of years or establishing a “sunset clause” that eventually nullifies the agreement after a long marriage. Generally speaking, crafting your own contract is always a good idea and will save time, stress and money in the long run.

How Businesses Are “Divided” in A Divorce In Illinois

The division of a business in a divorce depends on several factors, including classification, ownership, value, and marital contribution. Here are some simple examples:

Example 1: A company is deemed to be classified as marital property with each spouse entitled to receive 50% of the value. The court appoints or the parties hire an independent business valuator to determine its worth. Once the value is determined, one spouse will either pay a lump sum property settlement or may be ordered to “buy out” the other spouse’s share over time.

Example 2: A business that was valued at $2 million was found to be inherited by the owner spouse from a relative. This means the business is classified as non-marital property. The court excludes the business from division and awards the business to the owner spouse. However, the non-owner spouse may maintain that they made contributions during the marriage which allowed the business owner to “build” the business over the course of the marriage. Accordingly, the non-owner spouse may be granted a monetary award based on their “contributions” to the marital estate.

At Corri Fetman & Associates, Ltd., we aim to protect our clients and provide strategic solutions for business owners. We also prepare prenuptial and postnuptial agreements that will provide the protection and avoid future litigation for business owners that may encounter divorce or other life challenges. We thoroughly prepare, research and develop unique strategies to address the challenges for business owners that may encounter divorce. If you have questions or need guidance, do not hesitate to reach out. We thrive on helping our clients every step of the way.