ILLINOIS — Divorce can be a complicated and emotionally charged process — especially for business owners. In Illinois, where equitable distribution laws govern asset division, navigating what happens to a company during divorce proceedings can present unique challenges that may affect both ownership and operations.
Whether a business was launched before or during the marriage, it can be subject to valuation and potential division depending on how the court classifies the asset.
When Is a Business Considered Marital Property?
In Illinois, the courts determine whether a business is marital or non-marital property based on when it was founded and how it was managed. A business started during the marriage is typically considered marital property. However, even a business owned before the marriage can become marital if commingling of assets occurs.
This classification has major implications for division of assets. If the business has appreciated in value during the marriage — especially due to joint efforts or reinvested marital income — a portion of that increase may be subject to division.
Business Valuation Methods During Divorce
One of the most contentious and essential parts of the process is business valuation. Courts must assess the fair market value of the company, taking into account both tangible and intangible assets.
The most commonly used valuation methods include:
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Market Approach: Comparing the business to recent sales of similar companies.
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Income Approach: Assessing potential future earnings.
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Asset-Based Approach: Valuing based on total physical and financial assets.
A professional business appraiser is often hired to perform this analysis. As outlined in this LinkedIn legal guide, choosing the right approach depends heavily on the business’s size, structure, and growth potential.
What Happens After Valuation?
Once the court determines the value and marital status of a business, there are generally three possible outcomes:
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Sell the Business and Split the Proceeds – Often used when neither spouse wants to keep the company.
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One Spouse Buys Out the Other – The spouse who retains the business compensates the other through cash or offsetting assets like real estate or retirement accounts.
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Joint Ownership Continues – Rare and typically only feasible in low-conflict divorces.
High-conflict or high-net-worth divorces often lead to extended disputes, making outcomes unpredictable. Some couples consider mediation or collaborative divorce to reduce disruptions and preserve business value.
Steps to Protect a Business Before Divorce
Business owners can take proactive steps to safeguard their company from becoming a divorce asset:
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Prenuptial or Postnuptial Agreements – These documents can clearly define ownership terms.
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Separate Finances – Avoid mixing personal and business finances to maintain clear boundaries.
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Strong Documentation – Keep detailed financial records, including tax returns, profit/loss statements, and payroll data.
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Legal Counsel – Work with attorneys familiar with both family law and business valuation.
By doing so, owners can reduce uncertainty and ensure more control over outcomes if divorce becomes inevitable.
Do you think Illinois needs updated laws for how divorce impacts business ownership? Share your thoughts at ChicagoSuburbanFamily.com.
