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Naperville IL divorce business assets attorneyIn most situations, the divorce process will involve multiple different financial issues that will need to be addressed. When determining how to divide marital property, spouses will need to consider their physical belongings, financial accounts, real estate property, retirement savings and benefits, and debts. Business interests owned by spouses, either together or separately, will be a major factor in these considerations, especially for those who own professional practices. For doctors, dentists, therapists, chiropractors, accountants, or other professionals, a business will not only represent a significant investment of time, money, and effort, but it may also be a primary source of income. Because of this, professionals will usually want to determine how they can continue owning and operating their practice after their divorce is complete.

Addressing Ownership of Professional Practices

Family-owned businesses are treated the same as other types of property, and a professional practice that was founded during a couple’s marriage will be considered a marital asset, while a practice that was owned by one spouse before getting married will usually be considered non-marital property. However, in situations where a spouse contributed money or work that helped a business owned by the other spouse grow or increase in value, the spouse who owns the business may be required to reimburse the other spouse for their contributions.

During the divorce process, a business valuation will need to be performed to determine the full monetary value of a professional practice. Different approaches may be taken during this valuation, including looking at the business’s assets and liabilities, the amount that could be received if the business was sold, or the business’s projected earnings over the next several years. Personal goodwill is another factor that may need to be considered when addressing professional practices. For example, a doctor may have built up a good reputation among their patients, and the value of their practice may be based on their ability to continue to provide medical care to clients.

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Naperville business valuation attorneysBusiness ownership is a key asset that you must include in your divorce. Even if you started your business before you married, the amount that your business increased in value during your marriage will likely be part of your marital property. Calculating the value of your business is a vital step because it will affect how you divide other marital properties. If you wish to maintain complete ownership of your business as part of your divorce, a higher valuation may force you to compensate your spouse with more assets. Business valuation for a divorce can be complicated and requires professionals with experience in both divorce and business.

Choosing a Valuation Method

There are multiple ways that you can calculate the value of your business:

  • The asset approach values the assets that a business owns and subtracts the liabilities to calculate its total value.
  • The income approach looks at the business’s past profits and cash flow to predict its future income.
  • The market approach estimates what the business would be worth in a sale based on the recent sales of similar businesses.

A business evaluator may consider all of the methods, but the valuation method that they rely on the most will depend on the type of business that you own. For instance, the market approach may not be useful if there is not a comparable business that was sold, and the asset approach becomes more difficult if your business has a lot of intangible assets.

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How Divorce Can Change a Family-Owned BusinessMarriage is an equal partnership in which spouses share their assets and responsibility towards their family. For some spouses, their relationship extends to a business partnership. It is common for spouses to help each other run a small family business, with one spouse often serving as the primary owner and manager. In less common situations, the spouses may be equal business partners who were both instrumental in creating and growing the business. If spouses in a business partnership decide to divorce, they must decide how they will continue to run the business afterward.

Your Options

Your business is a marital property that you must include as part of your division of property. You have four options for what to do with your business during the divorce:

  • One of you can pay the other in exchange for complete ownership of the business.
  • You can continue your existing business relationship despite your divorce.
  • You can divide the business between each other and create separate businesses.
  • You can sell the business and divide the proceeds.

Some of these options may be impractical for you, depending on your circumstances. You should consider continuing to be co-owners only if you believe you can put your personal differences aside in order to make business decisions. Splitting into two businesses will make each of your businesses weaker and possibly have you competing over the same clientele. Selling your business is risky if you do not have a plan for how you will replace your lost income.

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Should You Sell Your Family Business During Divorce?Business owners have three options when their business is a marital property that is subject to division in a divorce:

  • One spouse can retain full ownership by buying out the other spouse’s ownership interest or giving up other marital properties;
  • Both spouses can be co-owners of the business; or
  • They can sell the business and split the proceeds as part of the divorce.

The third option is usually the least popular because selling a business may be giving up your livelihood. There are some situations where selling a business is a viable option, but you still must consider the complications of doing so.

Receiving Fair Value

You want to be well compensated if you choose to sell your business and lose a source of income. Before presenting your business to potential buyers, you will need to assess your business’s value, including its potential for growth. With an estimated value, you will know what a fair asking price is for your business. Unfortunately, other factors may drive down what you can receive for your business. A downturn in the economy as a whole or in your industry may decrease the number of potential buyers and how much money a buyer will want to spend. You may need to keep your business if you cannot find a buyer willing to pay fair value.

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