The division of assets can be one of the toughest parts of any divorce, but things can get especially complex and stressful when you have a business that you do not want divided up. There are some ways to protect a business during a high net worth divorce, though. You just need to plan ahead and be ready to follow the advice of a Peoria County divorce with a business lawyer.
Understanding How Illinois Treats Businesses in a Divorce
When you file for divorce in Illinois, it’s important to understand what will happen to your property in this process. Under 750 ILCS 5/503, the state adheres to the equitable distribution process of dividing assets. This means that your property will be classified as marital property (jointly owned) or separate property. Only marital property is subject to division. Additionally, equitable distribution means that your assets will be divided based on each party’s contribution to the marriage.
As such, a business may be considered marital property and thus subject to division, based on the circumstances present in your marriage.
When a Business Is Considered Separate Property
A business may be considered separate property, meaning it will remain in the sole possession of one spouse if:
- The business was formed before the marriage
- The owner never used marital funds for payroll, to pay debt, or to expand their business
- The spouse did not participate in running or supporting the business
- The spouse’s name was never added to corporate or ownership documents
When a Business May Become Marital Property
Under the following circumstances, a Peoria business may be considered marital property, and thus subject to division:
- The spouse, whether directly or indirectly, contributed to the business’s growth
- The spouse managed the business or held an operational role
- The owner used joint funds to pay for business expenses
- The spouse performed domestic labor, allowing the owner to focus on the company
- The owner co-mingled marital and non-marital assets
Using a Prenuptial or Postnuptial Agreement to Protect a Business
In some instances, there are documents that can be created before or during your marriage that help determine what happens to assets in the event of a divorce. These can be incredibly beneficial in protecting your business.
Prenuptial Agreements
A prenuptial agreement is an effective way to protect your business, but this must be completed prior to your marriage. This allows you to designate which property will be considered separate in the event of a divorce, including your business. However, it’s critical to understand that this document must meet all state requirements in order to be enforceable. Additionally, it cannot be signed under duress and requires full financial disclosure. Failure to do so can result in the document being rendered invalid and unenforceable.
Postnuptial Agreements
A postnuptial agreement can also be used to address what happens to a business in a high net worth divorce in Tazewell County. Generally, the only difference between a prenuptial and postnuptial agreement is when it is established. A postnup is created any time after you are married and, like a prenuptial agreement, can be used to establish what happens to your business during a divorce.
Can A Trust Protect a Business During a Peoria Divorce?
A trust fund is a beneficial tool that can help you protect your assets in the event of a lawsuit or divorce. This works by essentially transferring the asset out of your ownership and into the ownership of a trust fund.
An asset protection trust could be used to safeguard business assets, but you have to be careful about how this arrangement is made and when it is made. You want to plan this out far in advance to avoid any allegations of fraudulent transfers or other improprieties. If the court finds evidence that you were anticipating a divorce at the time the trust was made, they may deem it fraudulent and ultimately invalidate the trust as it was not established in good faith, but rather to improperly shield marital assets.
What If My Spouse Was Involved in My Business?
This is when matters can get complicated. If your spouse helped you run your business, they may be able to claim a portion of it. Generally, “help” can include:
- Taking on operational or administrative tasks
- Handling homemaking and child care, thus allowing you to work freely
- Serving in a managerial capacity
- Adding value through branding or finances
If any of these represent your spouse’s involvement in your business, they may have grounds for a claim for reimbursement or a share of the business’s value.
Practical Steps Business Owners Should Take Before a Divorce
If you are planning on filing for divorce in Peoria or Tazewell County, taking the necessary steps to best protect your business is critical. Generally, most legal challenges that arise during a high net worth divorce revolve around improper documentation and unclear comingling of assets.
As such, if you anticipate filing for divorce, you should do the following:
- Separate your assets and accounts
- Document premarital ownership
- Avoid further mixing of marital and separate assets
- Obtain a business valuation
- Consult an attorney
Common Mistakes That Make It Harder to Protect a Business
If you are a business owner, regardless of whether or not you are married, taking the steps to protect your company before a divorce is critical. Unfortunately, there are a number of mistakes you can make that weaken your sole claim to the business in the event of a divorce.
Examples of Actions That Weaken Your Claim
- Using joint bank accounts for business expenses
- Putting your spouse’s name on business documents
- Mixing your business and personal income
- Paying business expenses and debts with marital funds
- Giving your spouse a role or title in your business
Do I Have to Go to Court For a High Net Worth Divorce?
Litigation can be expensive and time-consuming, but there might be other options available to you. If you and your spouse can put differences aside and work together to come to a divorce agreement, you may be able to make progress in mediation sessions or a collaborative divorce. Our lawyers can also tell you about the arbitration process. These alternative dispute resolution options have a number of benefits, like lower costs, increased privacy, and greater control over asset division.
Contact Our Peoria Divorce Law Firm
If you are going through a divorce and are worried about what will happen to your business, Butler, Giraudo & Meister, P.C. can help you understand your rights. Every divorce is different, but our lawyers can tell you how they can help you with your specific situation and fight for a fair agreement. When you are ready to file for divorce, do not hesitate to contact our firm to learn how we can represent you during these complex matters.
