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Prenups and other options for protecting a business in divorce

When couples in Illinois get a divorce, they will need to divide their property. If one of the parties owns a business, the situation can become complicated unless there is a pre- or postnuptial agreement that outlines what will happen to the company in case of divorce.

Some agreements establish that the business is separate property. This can eliminate the cost and intrusive nature of valuation. However, other business owners may want the spouse to get a portion of the company's value, which, if it was started before the marriage, might be based on the enterprise's appreciation since the marriage.

Many people are not comfortable discussing these types of agreements. Another alternative is for a company's organizing documents to say that the business is not transferable in the case of divorce. In this situation, a spouse might receive a cash payout. Some business owners may pay themselves and their spouse below market rates. In the former case, a higher-market-rate salary might still be used as the basis for calculating support payments. In the latter case, a spouse might be able to claim a greater portion of the company's value. Sources for funding the business should be clear since using marital assets to fund the company may also give a spouse a greater claim on the company.

Pre- and postnuptial agreements don't always hold up in court, and even when they do, if there are children, parents also must negotiate child custody and support. Grounds for challenging a prenup could include not understanding the agreement or being coerced into signing it. However, even if a prenup is successfully challenged, a couple may still be able to negotiate an agreement for dividing the business and other property. Negotiation may give them more control than litigation and may also be less costly.

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Schlueter Ecklund & Davitt
4023 Charles Street
Rockford, IL 61108

Toll Free: 800-207-5133
Phone: 815-516-8264
Fax: 815-229-0733
Rockford Office Location