Business owners must prioritize securing their business and its assets during a divorce. In most cases, a business is a marital property that is included during the division of property. Business owners are unlikely to split ownership with a divorcing spouse who did not own or help run the business during their marriage. However, the two sides may dispute the value of the business and how much the other spouse should receive to offset that value. As a business owner, you can plan ahead to protect your business during a potential divorce by including it in a prenuptial or postnuptial agreement.

Why Is Your Business a Marital Property?

Spouses normally differentiate between marital and nonmarital properties based on whether one of them purchased the property before their marriage. However, a business predating a marriage is not enough evidence to make it a nonmarital property:

• You may have invested marital money into your business; 
• Your business may be the primary source of income in your marriage; and
• Your spouse may have sacrificed part of his or her career to allow you to focus on your business.

Your spouse can claim that the amount that your business increased in value during your marriage is marital property.

You and your spouse will decide which of you will retain ownership of your marital home after your divorce. However, the division of property in a divorce agreement is not enough to completely transfer ownership of the home to one person. As long as both of your names are on the deed and mortgage, you both will have some control over and responsibility for the home. The most efficient way to settle the issue is to transfer the deed and modify the mortgage while your divorce is still ongoing.

Potential Problems

Your divorce agreement states your intention for one of you to occupy and control your marital home after your divorce. It does not automatically change your deed or mortgage. Failing to update these documents may not have immediate consequences but will eventually cause complications:

• One of you cannot sell the home without the other’s approval if the deed still says that you both own the home;
• The person who no longer lives in the home could be liable for property tax and mortgage payments if the occupant does not pay them; and
• If the occupant files for bankruptcy, the mortgage lender can pressure the other person on the mortgage to pay the remainder.

It is easier to settle these issues between each other now than returning to court years later when you are having problems.

Dividing a family business in a divorce is difficult if each spouse has equal ownership of the business. To include the business in the division of property, the spouses must:

• Agree on who will own the business after the divorce;
• Thoroughly assess the value of the business; and
• Find other properties to award in exchange for the business.

Spouses can avoid these complications by choosing to remain co-owners of the business after their divorce. This is not a viable option for every divorce but can be mutually beneficial when spouses agree to it.

Valuation Process

Spouses immediately benefit during the divorce negotiations when they both keep ownership of the family business. They do not need to go through the long and complicated valuation process because they are not dividing the business. Neither spouse will have to give up valuable marital properties in exchange for total ownership of the business. The divorce agreement can presume that each spouse will receive equal value from the business as long as they are co-owners. Skipping the business valuation process saves time and money.

Married couples think of pets as being more like family members than property. For a couple without children, a dog or cat could fill the role of a child in a family. However, Illinois divorce law once considered pets to be marital properties more on the level of inanimate objects. A new law enacted at the beginning of 2018 changed that assumption so that pets are treated more like children. Illinois courts now recognize pet custody agreements and consider the well-being of the pet when determining which party will keep it.

Classifying Pets

The law still defines pets as assets but says that a divorce court can award sole or joint ownership of and responsibility for a pet from a marriage. To determine whether the law applies to your pet, you must answer two questions:

• Is your pet a marital or non-marital property?; and
• Is your pet a companion animal or service animal?

When you first got the pet can determine whether it is a marital property. A pet may be a non-marital property if one of you owned the pet before the marriage. If you got the pet during your marriage, then it is most likely a marital property. A service animal, such as a seeing-eye dog, will stay with the spouse that it is meant to assist. The law does not define a companion animal, but it is assumed in this case to be any pet that is not a service animal.

Savvy divorcees view their division of property as a strategic accumulation of assets instead of a struggle to obtain as many valuable properties as possible. Some assets have a potential value that their current value does not reflect. Just as importantly, other properties may be more costly to hold onto than they are worth. You should prepare for your divorce negotiations by identifying goals. Here are four considerations for obtaining long-term financial success from your divorce agreement:

1. Assess the Future Value of Your Marital Assets: You should use more than a property's current value when calculating an equitable division of property. Some properties can appreciate in value, such as market investments, real estate, and business interests. Identifying these potential growth assets will help you in choosing which assets you want to keep and preventing your spouse from taking advantage of you. You should ask for additional compensation if your spouse wants an asset that may be worth more than its current value.
2. Balance Risk and Reward: Relying on the growth of your divorce assets may backfire if the assets do not appreciate in value as estimated. Many growth factors are outside of your control, such as the state of the economy and business markets. You should measure an asset’s potential for growth by both its high-end outcome and likelihood of growth. Protect yourself by keeping some marital assets that are certain to maintain their current value.
3. Include Expenses in Property Valuation: Real estate, such as the marital home, is an enticing marital property because of its value and use. However, it also comes with many expenses, such as property taxes and upkeep. You should evaluate whether keeping a real property is worth the cost. Are you asking for the marital home because you need the home or because you want to keep a valuable property? You can receive several other properties in exchange for your marital home.
4. Prioritize Your Vital Properties: Some marital properties are more important to you than to your spouse. Maintaining complete ownership of your business protects your primary source of income. Later in your life, you will rely on your retirement benefits to support your living expenses. You may need to give up other marital properties in order to have complete control over these vital assets.

Making a Plan

You should discuss your financial strategy for your divorce with your attorney before you begin your negotiations. A McHenry County divorce attorney at Botto Gilbert Lancaster, PC, can help you identify key properties and advise you on how to keep them. Schedule a free consultation by calling 815-338-3838.

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