Divorce for Business Owners: How to Protect Your Company
Divorce can be complicated enough, but when one or both spouses own a business, the stakes are even higher. Whether you built your business from the ground up or inherited a family enterprise, protecting what you’ve worked so hard for is crucial. Divorce proceedings can put your company’s assets, operations, and future at risk if not handled properly.
At Masters Law Group, we understand the unique challenges that business owners face during a divorce. With years of experience in high-net-worth and complex divorce cases, including those involving business valuations and ownership rights, our team of attorneys is here to help protect your personal and professional interests.
In this guide, we’ll walk you through everything business owners need to know about divorce and how to help safeguard their company in the process.
Understanding Marital vs. Non-Marital Property
The first question many business owners ask during divorce is: Will I lose my business?
The answer depends largely on how the court classifies your business as marital property or non-marital property.
Marital Property
In Illinois, anything acquired during the marriage is generally considered marital property, regardless of whose name is on the asset. That includes a business started during the marriage or if marital assets were used to grow the business.
Even if the business is solely in one spouse’s name, it may still be considered marital property if it was founded or significantly enhanced during the marriage.
Non-Marital Property
Non-marital property includes:
- Assets acquired before the marriage
- Inheritances or gifts received individually
- Property excluded by a valid prenuptial or postnuptial agreement
If you started your business before you were married and did not mix marital and business finances, it may be considered non-marital. However, any increase in its value during the marriage may still be subject to division.
The Importance of a Business Valuation
If your business is determined to be marital property or partially marital, it must be valued for equitable division.
How Valuation Works
Valuation methods can vary, but generally fall into one of three categories:
- Asset-Based Valuation – Assesses the value of the company’s assets minus its liabilities.
- Market-Based Valuation – Compares your business to similar businesses that have recently sold.
- Income-Based Valuation – Projects future income and determines the present value of those earnings.
It’s critical to work with a forensic accountant or business valuation expert who is experienced in divorce proceedings. The valuation not only affects how much the business is worth—it can also determine how it is divided.
Division Options: What Happens to the Business?
Once the business has been valued, the court will consider how to equitably divide the value. Here are the most common options:
1. Buyout
One spouse buys the other out of their share of the business, retaining full ownership. This is often the most practical option, especially if both parties want to avoid interfering with the company’s operations.
2. Co-Ownership
Both spouses continue to co-own the business post-divorce. This requires a strong working relationship and a high level of trust—something not always feasible in a divorce.
3. Sell the Business
The business is sold, and the proceeds are divided. While straightforward, this option may not be ideal if the business is profitable and central to your livelihood.
Protective Strategies for Business Owners
To prevent your business from becoming a casualty of divorce, consider these proactive legal strategies:
1. Prenuptial and Postnuptial Agreements
One of the best ways to protect your business is through a legally binding prenuptial or postnuptial agreement that defines your business as separate property. This can outline:
- Ownership percentages
- What happens to the business in the event of divorce
- Whether appreciation in value is considered marital
2. Keeping Business and Marital Finances Separate
Avoid commingling business and personal finances. Use separate bank accounts, keep detailed records, and refrain from using marital assets to support the business.
3. Limiting Spouse Involvement
If your spouse worked in the business or contributed to its success, their involvement could entitle them to a larger share during divorce. Consider limiting their role in the business or outlining their contributions in a formal agreement.
4. Shareholder, Partnership, or Operating Agreements
If you co-own the business with others, your agreements should include divorce clauses—known as “buy-sell” or “involuntary transfer” provisions—that prevent a spouse from acquiring a stake in the business.
Navigating Divorce Without Disrupting Operations
Beyond asset division, divorce can impact the day-to-day operations of your business. Here’s how to help protect your company’s continuity:
1. Maintain Confidentiality
Business finances disclosed during divorce can become part of the public record. Work with your attorney to request confidentiality agreements or seal sensitive documents.
2. Manage Employee and Client Concerns
News of a divorce—especially one involving business ownership disputes—can lead to uncertainty among staff and clients. It’s important to control the narrative and assure stakeholders that the business will continue as usual.
3. Plan for Liquidity
If a buyout or settlement requires a large cash payment, ensure your business has sufficient liquidity or access to financing. Consider working with a financial advisor to explore creative solutions.
Tax Implications for Business Owners
Dividing a business during divorce can have complex tax consequences:
- Capital gains taxes may apply if the business or its assets are sold.
- Transfers of ownership may trigger tax liabilities if not structured properly.
- Alimony payments can also impact taxable income.
Work closely with a tax advisor or CPA who has experience with business-related divorce issues to avoid costly mistakes.
What If My Spouse Wants Half of My Business?
It’s a common fear—and while Illinois is an equitable distribution state (not equal distribution), this does not automatically mean your spouse gets half.
The court will look at various factors, including:
- Each spouse’s contribution to the acquisition or maintenance of the business
- The length of the marriage
- The economic circumstances of each spouse
- Prenuptial or postnuptial agreements
- Whether the business is a marital or non-marital asset
Often, the court will award the business to one spouse (usually the owner-operator) while compensating the other with a larger share of other marital assets (like retirement accounts, real estate, or cash).
What About Hidden Assets?
Business owners may be tempted to hide assets or understate revenue during a divorce. This is a mistake. Courts take hidden assets seriously, and being caught can damage your credibility and result in legal penalties.
If you suspect your spouse may be concealing business income, work with a forensic accountant. At Masters Law Group, we have experience uncovering and litigating these types of complex financial issues.
When Divorce Turns International
In today’s global economy, many businesses have international components—foreign partners, global clients, overseas assets, or even foreign marriage jurisdictions.
Divorces involving international elements can invoke The Hague Convention on the Civil Aspects of International Child Abduction, tax treaties, and other cross-border legal considerations.
Our team at Masters Law Group is experienced in handling international divorce matters and the unique challenges they bring, helping ensure your business and family remain protected across borders.
How Masters Law Group Can Help
Navigating divorce as a business owner requires a legal team with deep knowledge of business law, asset protection, and high-net-worth divorce litigation. At Masters Law Group, we bring all of that—and more—to the table.
We provide:
- Strategic business asset protection
- Fair business valuation guidance
- Experience in complex and international divorce litigation
- Comprehensive representation from start to finish
We know your business is more than just an asset—it’s your passion, your livelihood, and your legacy. We’re here to help you protect it.
Final Thoughts
Divorce is never easy, especially when your business is on the line. But with the right planning, strategy, and legal support, you can protect your company, your financial future, and your peace of mind.
Whether you’re considering divorce or are already in the middle of proceedings, don’t wait to take steps to secure your business. The sooner you act, the more control you’ll have over the outcome.
Contact Masters Law Group today to schedule a confidential consultation and learn how we can help you protect what matters most.
FAQs: Divorce and Business Ownership
1. Will my spouse automatically get half of my business in a divorce?
Not necessarily. Illinois is an equitable distribution state, which means the court divides marital property fairly, not always equally. If your business is considered marital property, your spouse may be entitled to a portion of its value, but that doesn’t always mean half ownership. The court may award the business to one spouse and compensate the other with other marital assets.
2. How do I know if my business is marital or non-marital property?
This depends on when the business was started, how it was funded, and whether marital assets were used to support or grow it. If the business was created before the marriage and no marital assets were commingled, it may be considered non-marital. However, any increase in value during the marriage could still be subject to division.
3. What can I do to protect my business before getting married or divorced?
Creating a prenuptial or postnuptial agreement is one of the most effective ways to help protect your business. These legal documents can clearly define your business as separate property and outline what should happen to it in the event of divorce. Other strategies include keeping business and marital finances separate and limiting your spouse’s involvement in the company.
4. Can my spouse access my business’s financial records during the divorce?
Yes. During the discovery process, both parties must disclose financial information, including business records. If your spouse believes the business is marital property or was used to hide assets, they may request a forensic accountant to conduct a full review.
5. What happens if my business has international ties or is part of an international divorce?
Divorces involving international elements can get more complex, especially if there are overseas assets, international contracts, or children involved. In such cases, laws like the Hague Convention may come into play. Masters Law Group has experience handling international divorce matters and can help ensure your business and family interests are protected across borders.
