Business Valuation During Divorce
Going through a divorce is difficult under any circumstances, but the prospect of property division can be particularly complex when there is a business that is either partially or entirely marital property. Under the Illinois Marriage and Dissolution of Marriage Act (IMDMA), marital property includes both assets and debts from the marriage, and it is distributed to the spouses according to the theory of equitable distribution. Classifying property can be one of the more complicated aspects of property distribution, but valuation can also be extremely complex. If you own a business with your spouse, or if your spouse alone owns a business or is in business with other people, it is likely that at least part of the business will be classified as marital property.
When a business is classified as marital property, it must be valued. While valuation should be straightforward, different people can have different ideas about the value of a business. The experienced Oakbrook Terrace divorce attorneys at our firm regularly assist members of the Muslim community with complex asset division issues, including business valuation. We can assist you with your case, and in the meantime, we want to provide you with more information about business valuation during divorce.
Determining Whether the Business Is Marital Property
The first step in business valuation during divorce actually does not have anything to do with assigning a value to the business. Instead, the court will need to determine what portion, if any, of the business should be classified as marital property and thus will be divisible during the divorce. Generally speaking, any business assets or liabilities acquired during the marriage are likely to be marital property unless there is a premarital agreement that says otherwise.
What happens if the spouse opened the business before the marriage but has remained in business throughout the marriage? This kind of situation is common, and the court will need to determine a portion of the business assets and liabilities that should be classified as marital property. In general, assets and liabilities accrued or incurred after the date of separation will be considered non-marital property.
Valuing the Business
Some assets and liabilities of the business may be easy to value because they are more objective and straightforward. For example, the amount of money in particular business accounts is not open to interpretation. Similarly, debts of the business that are a dollar figure are objective values.
However, other aspects of the business can be much more subjective. For example, what is the value of the customer goodwill that the business has developed? Or, for instance, how does a court place a value on certain services rendered by the business? In most cases, business valuation will be completed either through a “book value approach” or by a “market value approach.” A book value approach involves looking at the business’s books, or accounts, and using those numbers for valuation. A market value approach involves assigning a value based on the current market value of the business.
As you might imagine, business valuations can be extremely complicated, and it is often helpful to obtain more than one valuation in order to clarify how subjective interpretations can affect valuation.
Contact an Experienced DuPage County Divorce Attorney
If you or your spouse own a business and are thinking about divorce, it is important to know that business valuation can be extremely complicated and contentious. A compassionate and experienced DuPage County divorce lawyer can discuss your case with you today and provide you with a plan for valuing your business for the purposes of property division. Our firm has years of experience assisting members of the Muslim community in our area, and we would be pleased to advocate for you in your divorce. Contact Farooqi & Husain Law Office online or call us at 630-909-9114.