If either you, your spouse, or both of you started or purchased a closely-held business during your marriage such as a Professional Practice (such as a legal, dental, or medical practice), or a service oriented business (such as a car repair shop), manufacturing company, or any other type of business, then the valuation and division of that business can become a major focus of your divorce. In Illinois, marital property includes a business started during the marriage, and thus is subject to division in a divorce.
Properly valuing your business is critical to getting your fair share. Different types of businesses present different valuation challenges. A business selling a product may be less dependent upon the personal involvement of a spouse than a specialized service business, such as a medical practice, where the continuing value of the business is often wholly dependent upon continued professional services.
When needed, we will work with experts such as accountants and appraisers to properly value a business. The three main business valuation models include an income valuation (i.e. present value of future net income), a market-based valuation (i.e. what the business could be sold for), and an asset-based valuation (i.e. net value of the business assets).
In the case of a professional practice (such as a medical practice), for example, an income valuation that assumes the continuation of the services provided by the doctor/spouse can be very high. A market-based approach (how much the business could be sold for) will likely be significantly less, as the practice will not usually be worth a high dollar amount if the doctor is no longer going to be involved in the business. The asset-based valuation may yield the lowest value of the business, as the assets (which may consist primarily of office equipment and furniture) may have a very low market value.
Because the wide variations in valuation that can result in different valuation models, it’s important that an attorney fight aggressively to see that the model that is the most advantageous for a client be used.
In many (perhaps most) cases, it will be in the best interests of the business to continue. If this is the case, a determination must be made as to how the business assets are to be divided.
In some cases, one spouse will be much more involved in the business than the other spouse, particular in the case of a professional service business (such as a medical practice, where only one spouse may be a doctor). If the parties can decide who will continue with the business, the issues becomes how to pay the spouse who won’t continue with the business for his or her fair share.
Sometimes there can be sufficient marital assets to make this allocation (one spouse gets the house, the other spouse gets the business). In other cases, the spouse getting the business will pay the other spouse over time.
Depending upon whether we represent the business-owner spouse or the other spouse, there are many important considerations that go into developing these settlements, such as issues like obtaining security for the payments to be made, and developing consequences as to what should happen if payments are missed. In a structured settlement, we will work diligently in negotiations to protect the interest of clients.
Having a Bachelor of Business Administration, majoring in accounting, and having significant business experience, Mr. Teeter is comfortable in reviewing financial statements and tax returns related to your business and in communicating with experts we hire to value your business.
We can handle all of the Property Division aspects of your divorce. If you would like to read more now, click on any of the following links: