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Is your small business part of your marital estate?

 Posted on June 01, 2020 in Divorce

Like other small business owners, you are proud of the progress your venture has made in recent years. Thanks to your hard work, financial investment and business acumen, you have turned your startup into a well-oiled machine. If you are thinking aboutending your marriage, though, you may have some uncertainty about what happens to your company.

In Illinois, judges use anequitable distribution approachwhen dividing marital assets. Therefore, if you and your spouse cannot reach an agreement, a judge is apt to give you a fair share of everything the two of you jointly own. You can probably keep everything that is exclusively yours, however. To plan for your future, you must identify whether your business is part of the marital estate.

Separate vs. marital property

Separate property typically includes assets you acquired before you married your spouse. Anything you individually inherited is also likely to be separate property for divorce purposes. Marital property is usually everything that is not separate property.

If you began your business before you married, if you included your business in a prenuptial or postnuptial agreement, or if you funded your business solely with an inheritance or gift that was separate property, your business is likely separate property. There are exceptions, however.

Contributions and proceeds

Even if you think your business is a nonmarital asset, your spouse’s contributions may give him or her some ownership interest. For example, if your partner helps you fill orders, you may not exclusively own the company. The same is true if you use marital assets to support the business. That is, commingling marital wealth with the business may render an otherwise separate business part of the marital estate. Furthermore, if you have used proceeds from the business to support your spouse, he or she may claim some type of ownership interest in the venture.

If your spouse can successfully argue that the business is part of the marital estate, though, he or she is likely to receive an equitable share of it.

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