Family Owned Businesses and Divorce
Today Christopher P. Casey and James M. Godbout from the Chicago office of Stout Risius Ross, Inc. share their personal thoughts on what happens to family businesses when getting divorced:
Family owned businesses always present unique challenges to the client and the divorce lawyers when going through a divorce. The spouse who owns the company may feel overly attached and entitled to the business, especially if he/she founded or inherited the company. This could ruin a reasonable settlement offer presented by the divorce attorneys. Or the owning spouse, especially if he/she has financial control of the company, may use funds to dissipate the marital estate. Despite these challenges, if only one spouse is actively involved in the company, the other spouse will often be appropriately compensated.
However, the situation may be more complicated when both spouses hold important positions within the business.
What happens if both spouses are vital to the ongoing success, profitability, and value of the company? Illinois divorce case law suggests the solution depends on whether or not the spouses will be able to work together in the future. In Marriage of McMahon (1980), the Appellate Court noted the trial court weighed “the disadvantages of attempting to divide the corporation . . . where the evidence reflected an apparent inability by the parties to cooperate on any major business question.” These “disadvantages of attempting to divide the corporation” may include the loss of market share, key employees, etc., which means owners lose value – something neither parties wants.
But there is good news. Even if a company’s value suffers because of divorce and the departure of a spouse, the losses may be temporary. For just as the individuals are better off ending a marriage and moving on, the same goes for a company’s health.
And it is not unheard of that some spouses can continue working together while discontinuing their marriage. Whether they are pushed to civility by profit potential, unable to find other employment, or simply possess the ability to separate personal and work relationships, ex-spouses can and do continue working together – for better, for worse, for richer, for poorer, in sickness and in health, until death do they part.
Christopher P. Casey, CPA, CFA, ASA and James M. Godbout, ASA, AVA, CDFA, CFE are Directors in the Chicago office of Stout Risius Ross, Inc. and members of the firm’s Family Law Valuation & Consulting Group which specializes in expert testimony related to business valuations, lifestyle analyses, asset tracing and forensic accounting services.
Michael C. Craven is a well-known divorce attorney in Chicago, CPA and a partner of the law firm, Beermann Swerdlove, LLP (Formerly of Beermann, now a Partner at Harrison LLP) located in the Chicago area. He is highly respected among other divorce attorneys, judges and his clients. He also holds a Master of Tax Law Degree (LLM). For more information about his services, contact Michael at mcraven@harrisonheld.com or at Divorce Lawyers Chicago.
