How are Small Businesses Valued in an Illinois Divorce?

 Posted on September 03, 2021 in Divorce

The division of marital property is one of the most complex elements in a divorce, and this is especially true when one or both spouses own a small business. Entrepreneurs who start their own businesses are highly invested in the business’s success, and are often understandably concerned about the potential impact of marital asset division on their business’s value. 

On the other hand, many people work for a business started or owned by their spouse and have spent years helping the business increase in value and productivity. Regardless of the position from which a spouse approaches the divorce, both parties have an interest in knowing the true value of a business. 

How is the Value of a Small Business Determined? 

The three primary methods of determining a small business’s value are: 

• The Asset Method - This method combines a business’s debt with its assets to come up with an estimate of the business’s value. Business owners using the asset method may use tangible assets, like equipment and real estate, as well as intangible assets, like reputation and community awareness. 
• The Market Method - This method compares the business in question to similar businesses that have recently sold in order to estimate the likely sale price if the business were to be sold now. 
• The Income Method - This method examines a business’s past financial documents to determine past income and potential future income. Information from tax returns, profit-and-loss statements, and contracts can all be used in combination with potential future risks to estimate a business’s current value. 

When is the Value of a Business Declared? 

Illinois law requires a declaration date to be set by the divorcing spouses or the court. On this date, the fair market value of the business will be declared. Once the value has been declared, it will be used for the remainder of the divorce proceedings, even if the value of the business goes up or down substantially. 

Can the Value of My Business Be Divided if I Am a Sole Proprietor? 

Many working professionals who own private practices can only keep their business afloat because of their reputation. Therapists, attorneys, or similar professionals who operate as individual practitioners have what courts call “personal goodwill” - in other words, the value of the business is only as good as the reputation of the professional. In situations like these, “personal goodwill” is considered intangible and cannot be divided in a divorce. 

Meet with a DuPage County Divorce Attorney

At The Stogsdill Law Firm, P.C., we understand the importance of estimating a business’s value whether the business belongs to you or your spouse. If you are considering divorce and wondering what the financial impact on your business would be, meet with a Wheaton, IL divorce attorney who has experience with divorces involving small businesses. Schedule a confidential consultation by calling our offices today at 630-462-9500. 

Source:

 https://www.ilga.gov/legislation/ilcs/ilcs4.asp?DocName=075000050HPt%2E+V&ActID=2086&ChapterID=59&SeqStart=6200000&SeqEnd=8675000