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DIVORCE: VALUE OF A BUSINESS OR PROFESSIONAL PRACTICE |
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If the ownership of the business is only in the name of one of the parties to a divorce (or one of the parties and other shareholders or partners) can the business be considered an asset of the marriage? |
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If my interest in the business was inherited, received as a gift, or owned by me before the marriage, will it still be part of the marital assets? |
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But what if my spouse cannot run the business/is not qualified to engage in the professional practice? |
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How is the fair market value of the business or professional practice determined? |
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A buyout agreement is one by which partners, or other shareholders may buyout the interest of a party who is withdrawing. Is a buyout agreement evidence of value? |
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Is the goodwill of a professional practice or business included in the fair market value? |
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Is it true that it is usually expensive to have an appraisal made of a business/professional practice? |
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| Q: |
If the ownership of the business is only in the name of one of the parties to a divorce (or one of the parties and other shareholders or partners) can the business be considered an asset of the marriage? |
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Yes. If the interest in the business was acquired during the marriage, it is a marital asset, much the same as the marital residence. |
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| Q: |
If my interest in the business was inherited, received as a gift, or owned by me before the marriage, will it still be part of the marital assets? |
| A: |
No. Assets which are received during the marriage by inheritance or gift are not marital property and, after the divorce you will continue to own these assets as your nonmarital property, but this subject is legally complex. It depends on the facts, so you need to seek an opinion from your lawyer. |
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| Q: |
But what if my spouse cannot run the business/is not qualified to engage in the professional practice? |
| A:: |
The divorce court looks for the value of the business/professional practice. In apportioning assets the court will place the value of the business/professional practice on the side of the ledger of the party operating the business/professional practice. This means there will have to be an offsetting asset on the other party's side of the ledger, or a buyout. |
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| Q: |
How is the fair market value of the business or professional practice determined? |
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Various ways, but usually by an appraisal. In theory the value of an interest in a business, or in a professional practice, is dependent on the future benefits that will accrue to that interest, with the value of the future benefits discounted back to a present value by some appropriate discount (capitalization rate). The discount rate is a critical element. The difference of a point or two may make a very significant difference in value. |
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| Q: |
A buyout agreement is one by which partners, or other shareholders may buyout the interest of a party who is withdrawing. Is a buyout agreement evidence of value? |
| A: |
Yes, but it is not controlling. The judge may also consider other evidence of value. |
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| Q: |
Is the goodwill of a professional practice or business included in the fair market value? |
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Yes, usually. The rule in Illinois , however, is that the goodwill of a professional person's solo practice is not a marital asset subject to distribution in a divorce. In a business, a distinction should be made between the institutional goodwill of the business and the personal goodwill of the owner(s) of the business. Personal goodwill is not a marital asset. Also, goodwill should not be counted as an asset if it is goodwill which generates the future income upon which an award of maintenance (alimony) is based. |
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| Q: |
Is it true that it is usually expensive to have an appraisal made of a business/professional practice? |
| A: |
Yes. Unlike the appraisal of a house, the appraisal of a business/professional practice has many elements, some of which are highly complex. |
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