Is business debt ever considered marital property?

| May 29, 2020 | High-Asset Divorce |

While debt might seem like just another part of life, it can further complicate already difficult matters. Business debt in particular can cause problems during divorce. Depending on how a business owner used money borrowed against his or her business, it may be hard to untangle that debt from marital property.

For example, someone in Illinois might believe a business debt is marital property if it was borrowed against his or her business’ real estate and then used for joint marital expenses. Business owners who choose to do this should be sure to maintain a paper trail of how those funds were used. Otherwise, a spouse could insist that he or she had no knowledge of the loan or was not sure what it was used for. Unless the business owner can prove otherwise, the debt will most likely be considered separate property, and he or she will be solely responsible for paying it back.

There is also some confusion when it comes to paying debt with business income and how it influences support payments. This is because some Illinois business owners choose to give themselves a lower income and then redirect the rest of the business’ income toward its debt. An owner might expect to pay spousal or child support based on the income he or she actually brings home, but the court may think differently. They may consider the total income as both what he or she takes home as well as what is redirected toward debt.

Business owners must already deal with the possibility of separating business assets from marital property, but not everyone understands that debt is also part of this equation. Being inadequately prepared can put someone’s business in a compromising position. Taking the time to speak with an experienced and knowledgeable attorney can help business owners decide which actions are most appropriate for their unique situations.

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