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Protecting a Small Business During Divorce

Divorce can be especially complicated for small business owners, who bear a large responsibility in running and maintaining their business. On a personal level, a poorly-managed divorce has the potential to drain the business owner of focus, time, and money, all of which are valuable assets for any company. A small business owner in Chicago or Oak Park will encounter a variety of issues when facing a divorce. In this comprehensive guide, the family law attorneys from Conniff Law Offices cover the various factors and methods to consider to help facilitate a smooth divorce where a business is involved.

Is the Business Marital Property?

First and foremost when dealing with a small business in divorce, it is important to note the possibility that a court could find the small business to be marital property. There are circumstances where businesses that began prior to the marriage may be considered as marital property. Even family businesses are subject to becoming marital property. Where a family business that existed prior to the marriage is handed down to a married son or daughter through a restrictive stock transfer or another form of conveyance, that transfer or conveyance during the marriage may be treated as a gift to the marital estate. In such a case, that gift to the marital estate may at best be included in the total marital estate for allocation between the spouses, or, worst case scenario, subject to division upon dissolution.

Valuation of a Small Business in Divorce

In a divorce with a small business involved, the valuation of the small business may also prove problematic. Courts will consider business valuations in determining the division of marital assets between spouses and the ability to pay, or need to receive, maintenance and/or child support. 

Further, if the court determines both spouses have an ownership interest in the business, the business value will play an important role in any distribution of marital assets or buyout offers between spouses, assuming that the parties settle before trial.

Maintenance and Child Support

A small business owner must also consider the effect that maintenance and child support payments may have on their cash flow and liquidity. If these payments are not properly structured, a business owner may face financial strain.

Protecting a Small Business: Using a Prenup or Postnup

Commonly, protecting a small business during divorce is achieved with a prenuptial agreement (prenup). A prenup is a contract each partner signs before marriage, describing what will happen to all assets, property, and income should a divorce, separation, or death occur. Having the foresight to get a prenup before marriage is the most reliable way to ensure you would retain ownership of your small business in a divorce. 

If you’re already married and do not have a prenup, your best option is a postnuptial agreement (postnup). A postnup includes the same important assets and property as a prenup, but it is signed after marriage.

Is There a Possibility of Remaining Co-Owners? 

This is a rare situation, but in the case of a very amicable divorce, the spouses may be able to continue co-owning the business together. Even if the two of you are on excellent terms, it is strongly recommended that you have a formal agreement, such as a shareholder’s agreement or an operating agreement, to memorialize that the business relationship is now one of independent investors. 

If the spouses want to take this route but do not want to run the business together, one spouse could take on the major responsibilities of operating the business, while the other could receive a certain percentage of payments moving forward which would act as their share of the marital assets.

Hire an Attorney Experienced with Divorce and Small Businesses

Small business owners should only work with experienced divorce attorneys who understand the complexities of their small business in a divorce and the unique needs that go along with it. While a divorce with a business involved will proceed through the same legal channels as a regular divorce, the final agreement will likely be dissimilar from a standard marital settlement agreement. 

The Oak Park and Chicago-based family law attorneys at Conniff Law Offices have many collective years of experience in protecting a small business during divorce. Above all else, we value compassion, excellence, and discretion, which we apply to every case we work through. To learn more about how our team can help you, please contact us to start a case review.