Effect of Divorce on a Small Business

Part of owning a small business is preparing for the impact of a major life event, like divorce. Unfortunately, many business owners are not prepared adequately, increasing the chances that the small business will not survive the major life event.

Effect of Divorce on a Small BusinessFortunately, your Illinois small business attorney can offer a variety of tools that enable a small business owner to prepare for such events.

Take divorce, for example. In an Illinois divorce, a judge will take all marital property and divide it equitably between the parties. But, what exactly is marital property? In Illinois, a judge will presume an asset to be marital property if the parties acquire it during the marriage. Thus, a small business that the parties start after marriage will be considered marital property subject to equitable distribution.

On the other hand, if the small business predates the marriage, its initial value could qualify as non-marital property, but any increases in value that occur during the marriage would be subject to equitable distribution.

Without adequate planning, small businesses often do not survive a divorce, especially if there is animosity between the parties.  For example, if a judge awards a portion of a business to a spouse who was not and does not want to be involved with it, the parties may have to liquidate the business to cash-out the other party.

However, with proper planning the parties can avoid this. For example, the parties could sign an agreement identifying exactly their interest in the business. Moreover, they could specify buy-out provisions that would give one party adequate time to secure funding without having to liquidate the business.

Preparing a small business for a major life event is not easy, but it is necessary. If you have questions, contact your Illinois small business attorney to discuss your options.