Dealing with a divorce isn’t fun for anyone, and for entrepreneurs or small business owners, the process can be even more stressful and complicated.
You’ve invested time, energy, and resources into building your enterprise, and protecting your interests during a divorce is crucial to ensure your hard work doesn’t unravel.
Your business, likely your most valuable asset and primary source of income, may be at stake during property division proceedings. Understanding how to protect your business interests before or during a divorce is essential for maintaining both personal and professional stability during this challenging transition.
The Role of Marital Property Laws in Illinois
When someone is in love, they always don’t think about what will happen financially if the relationship deteriorates. Before tying the knot, it’s smart to meet with an attorney or other experienced financial advisor who can offer guidance and support.
Illinois is an equitable property state, and all property acquired during a marriage is presumed to be marital property unless proven otherwise “through clear and convincing evidence.”
Assets commonly considered to be marital property include:
- The marital home(s)
- Real estate or assets acquired after the marriage but before the divorce
- Vehicles
- Retirement accounts
- Assets owned before the marriage but became co-owned by both spouses
- Debts and other liabilities
The Illinois Legislature lists non-marital property as property acquired before the marriage or by gift, legacy, or descent, assets that are acquired in exchange for property received before the marriage, or assets that are specifically excluded by a valid agreement of the parties such as a pre- or postnuptial agreement.
If your company started or significantly grew during your marriage, it may be considered marital property. That’s why it’s vital to maintain clear records showing when the business was founded and how it was financed.
Prenuptial or Postnuptial Agreements: A Powerful Shield
One of the most effective ways to protect your business in a divorce is to have a well-crafted prenuptial or postnuptial agreement in place.
Prenuptial agreements are legally binding contracts signed before marriage, that allow you to define how your business and other assets will be treated in the event of a divorce. This could include:
- Classifying the business as separate property: Your company will not be considered marital property and is therefore not subject to division during divorce proceedings.
- Establishing a valuation method: This process ensures a fair and objective assessment of the business’s worth, preventing disputes over its value.
- Creating a buy-sell agreement: A critical document that outlines how your spouse’s interest in the business will be bought out, protecting your ownership and control.
Postnuptial agreements, signed after marriage to outline protections and ownership of assets, can also provide significant protection for your business. These agreements can be used to:
- Modify or amend an existing prenuptial agreement.
- Address changes in circumstances, such as the significant growth or decline of the business.
- Provide clarity and certainty regarding the division of assets, including your company.
During the divorce proceedings, courts require an accurate assessment of the business’s value to ensure equitable distribution if this asset has not been excluded by a prenup or postnuptial contract. Always choose a certified appraiser with professional experience in valuing enterprises within your industry.
The court will also consider future earning potential, the role of both spouses in the business’s growth, and current market conditions and industry trends.
Staying in Your Lane
Many couples decide from the beginning that it’s smarter and more convenient to keep their finances separate.
Maintaining a strict distinction between personal and business accounts is especially crucial if you’re a small business owner. Mixing personal and business funds can blur the lines between marital and non-marital property.
Document all business transactions meticulously and maintain separate credit cards and bank accounts for personal and professional use. Not only does this offer additional protection from liability, but it also helps guard your hard-won book of business against an angry or vengeful spouse.
If your spouse has played a significant role in the business, they may have a claim to a larger portion of it. To minimize this risk, avoid hiring your spouse for critical roles unless absolutely necessary and be sure to clearly delineate roles and contributions in writing.
In certain cases, one particularly thorny issue that often arises is that of dissipation: the waste, unjustified spending, or hiding of marital assets by one spouse. Squirreling away business assets to not have to share them during divorce proceedings has become a somewhat common occurrence, unfortunately.
If you feel that martial assets or business value is being dissipated or hidden in order to unbalance a divorce settlement, it’s essential to consult with your legal counsel right away. Your attorney may recommend the services of a forensic accountant. These financial specialists are adept at spotting the signs and performing in-depth analyses.
You’re Not Alone
Structuring your company as a legal entity, such as an LLC or corporation, can provide an added layer of protection for owners facing a divorce. Additionally, placing your business assets in a trust separates them from personal assets and protects them from debt and other liabilities.
An experienced attorney specializing in divorce and family law can provide invaluable guidance and representation throughout this difficult process. In many cases, negotiating a settlement and reaching an amicable agreement is less costly and time-consuming than litigation.
At the Law Offices of J. Jeltes, we have over 20 years of experience helping people navigate some of life’s most challenging family transitions, including divorce, adoption, parental responsibility, and probate. We’re dedicated to achieving the best result possible for our clients — reach out to us today!
