The financial and legal interests of spouses are closely intertwined during their marriage, so one of the most critical aspects of the proceedings will be separating these bonds. Illinois’ property division statute covers this part of the process, providing that all marital assets are subject to equitable distribution between the parties. Therefore, the initial inquiry is whether the item was acquired during the marriage or became jointly owned under certain circumstances. Then, all marital property is divvied up between the parties according to the interests of fairness.
However, when a marital asset involves ownership interests in a business, the assessment is far more complex. Putting a price tag on a company requires a thorough business valuation, and it is not just the entity’s assets and debts that figure into the equation. Goodwill is an important factor for reasons you might not consider in the context of ending your marriage. Divorce lawyers in Chicago encounter these issues often, so there are a few key points to note about business valuation.
Basics of Business Valuation in Divorce
While the issue is important when selling a company, business valuation is a focal point when dealing with property division in divorce. In general, the process involves determining the net worth of an organization, taking all relevant factors into account. The evaluation may include:
- Market size
- Prospects for growth
- Industry demand
- Profit margins
- The value of goodwill
Definition of Goodwill
The notion of goodwill is an intangible asset that adds value to the company, such as the brand name, reputation, intellectual property, proprietary processes, and many other factors that contribute to the organization’s success. A solid, loyal customer base and positive customer relations can also affect goodwill. In Illinois divorce cases, goodwill is more complex because the goodwill needs to be allocated between enterprise goodwill and personal goodwill.
Options for Business Interests in Divorce
There are different methods for business valuation, and it may be necessary to retain an accounting or other valuation professional for assistance in a divorce case. Still, the parties will typically be looking at three alternatives for asset division related to business ownership:
- Continue operations as partners, which can be extremely difficult for ex-spouses.
- Sell the company to a third party, in which case the proceeds of the sale become subject to equitable distribution.
- One party buys out the interests of the other.
A business valuation can be important for all three options, so goodwill is likely to be a factor in divorce. However, keep in mind that when one spouse owned the entity before getting married, the company might be considered separate property not subject to equitable distribution. However, even when a business is separate property, its value is still relevant.
Consult with Our Divorce Lawyers in Chicago About Business Valuations
From this description, you can see why retaining experienced legal representation is crucial when addressing business valuation in divorce. For more information about the role of goodwill, please contact Chicago divorce attorney Michael C. Craven to schedule a free initial consultation. You can reach our office by calling (312) 621-5234.
