Business Valuations in Illinois Divorces
When a couple gets divorced, one of the major issues that must be addressed is the division of their assets and property. This includes any businesses that they may own. In Illinois, the process of appraising the value of a business in a divorce can be complex and requires the expertise of a professional business appraiser.
A first consideration in the process is whether the business is considered marital property or non-marital property. Marital property is defined as property that was acquired by either spouse during the course of the marriage, while non-marital property is property that was acquired before the marriage or by inheritance or gift. Non-marital property is not subject to division in a divorce. A business being marital vs. non-martial does not change the valuation approach, but it may impact other aspects of the case.
Once it is determined that the business is marital property, the next step is to hire a business appraiser. A business appraiser is a professional who has the knowledge and experience to accurately determine the value of a business. They will take into account various
factors such as the business's financial performance, industry trends, and the market conditions to arrive at a fair and accurate valuation. The appraiser will typically conduct an analysis of the business's financial statements, including income statements, balance sheets, and cash flow statements, to determine its financial performance. They will also look at industry trends and market conditions to assess the business's growth potential and competitive position.
Once the business appraiser completes the valuation, they will provide a written report that outlines their findings and the methodologies used to arrive at the final value. This report will be used as evidence in the divorce proceedings.
It's worth noting that in Illinois and most states, the court will have discretion to accept or reject the Business appraiser's valuation in which if both parties don't agree on the value. Appellate courts have consistently ruled in this manner. One example is In re Marriage of Graham, 2012 IL App (3d) 110726, where the court upheld the business valuation report of a certified public accountant. In that case, the court found that the accountant's report provided a "fair and equitable" value of the business and accepted it as evidence in the divorce proceedings.
Another example is In re Marriage of Lieb, 2013 IL App (1st) 122051, where the court rejected the business valuation report of a business
appraiser. In this case, the court found that the report was not credible because the appraiser did not consider all relevant factors in determining the value of the business. The court instead appointed a neutral third-party expert to value the business.
Additionally, In re Marriage of Johnson, 2016 IL App (1st) 132974-U, the court noted that Illinois courts consider the following factors when determining the value of a business: the business' gross revenues, net income, earning power, and goodwill. With this criteria the court held that both parties' appraisals were acceptable and thus they took the average of both to be the fair value of the business
These cases demonstrate that the courts in Illinois will carefully review the evidence presented and use their discretion to accept or reject the business valuation report. It also illustrates how important it is for the business appraiser to consider all relevant factors and provide a credible and fair valuation report. The court may even appoint a neutral third party expert to value the business as well.
It's also important to understand that business may have a "personal goodwill" component which is tied to the business owner's reputation and relationships, versus a "enterprise goodwill" which is tied to the business itself. The personal goodwill component is not divisible in a divorce, however the enterprise goodwill will be. In the case of In re Marriage of Cokinis, 2018 IL App (1st) 172058, the Appellate court noted that personal goodwill is tied to the reputation, relationships and skill of an individual, which is not divisible upon divorce and can't be considered an asset to be divided among the spouses.
This case also reaffirmed the previous case law that established that only enterprise goodwill, which is goodwill that is inherent to the business and its operation, can be considered divisible asset to be distributed among the spouses.
Once the value of the business has been determined, the couple can then negotiate how to divide the assets. This could include selling the business and dividing the proceeds, or one spouse buying out the other's share of the business. It's important to keep in mind that dividing a business can be complicated and may require the help of a legal and financial professional.
In conclusion, appraising the value of a business in an Illinois divorce can be a complex and time-consuming process. It requires the exper
tise of a professional business appraiser, and the court will use their report to determine the fair and accurate value of the business. The value of the business will then be used to determine how the assets will be divided between the two parties. The process can be challenging but with the help of professionals it is possible to arrive at a fair and equitable solution.
If you're contemplating divorce in Chicago or the surrounding areas it is important to have a Chicago divorce lawyer who understands concepts related to business valuations and division. Please feel free to contact Andrew Harger to discuss the same.