Owning a business is challenging, extremely validating and, hopefully, very lucrative. A business owner’s divorce is, by far, the most difficult kind of divorce because the value of the marital portion of the business must be valued and divided.
The people that ultimately determine the value of your business, judges, have never owned a business. The people that explain your business’s worth to the judge are lawyers who decided to play it safe with law school instead of investing in a business like you did.
Finally, business owner divorces are rare. The vast majority of divorcing people are W2 employees with no business to divided in a divorce. 99% of divorce lawyers are focused on the employee divorce litigant NOT the employer divorce litigant. Therefore, I’ve compiled this list for you to ask your potential divorce lawyer and the answers you should expect from them.
1. “What Do You Think About A 503(L) For My Case?”
This is, admittedly, a trick question. You just want them to have some kind of thought. This question determines if the divorce lawyer is sufficiently familiar with the Illinois Marriage and Dissolution of Marriage Act to know the clause that allows a judge to appoint an expert as a court’s witness to resolve financial questions.
“The court may seek the advice of financial experts or other professionals, whether or not employed by the court on a regular basis. The advice given shall be in writing and made available by the court to counsel. Counsel may examine as a witness any professional consulted by the court designated as the court’s witness. Professional personnel consulted by the court are subject to subpoena for the purposes of discovery, trial, or both.” 750 ILCS 5/503(l)
Any hesitation or vague answer from a lawyer about this basic issue is an immediate red flag.
2. “Would I Be Better Off With A 503(L) or a Controlled Expert?
A 503(L) financial expert does not work directly on your behalf. They work for the judge (even if you’re paying them).
A controlled expert works for you, exclusively. It should be no surprise that their estimation of your business’s value will likely be in your favor (that is a lower value or lower divisible enterprise value). Furthermore, you can hire and fire controlled experts without disclosing them to the other side (it’s considered attorney work product) until you get a result that you like (at least before the official required disclosure dates).
The only advantage a 503(L) expert has is that they are cheaper because there is only one of them.
3. “What Kind Of Discounts Do You Think My Business Would Be Eligible For?”
This is not a legal question but a business valuation question. Many divorce lawyers hire a business valuation expert, cross their fingers and hope for a good valuation. The valuations can be massively manipulated by “discounts” that are applied against the value of the business. You, as the business owner, want as many of these discounts applied as possible.
Examples of discounts against a business valuation are: discount for lack of marketability, discount for lack of control, key person discount, and the carve-out for personal goodwill.
If a divorce lawyer can even answer this question with any substantive answer that is a massive green flag that they not only know the law for business valuations but they know the underlying science behind business valuations (this is surprisingly rare).
4. “Which Business Valuators Do You Usually Appoint?”
There are surprisingly few business valuators who Illinois divorce lawyers regularly appoint. Expect to hear the same names over and over again. This is a good thing, no one wants a surprise when the business valuation is returned. Too high of a valuation, is obviously bad. Too low of a valuation, will likely be successfully challenged.
Note: I am not listing the business valuators I usually appoint here because if I wanted to appoint one as a 503(l) expert, opposing counsel would use this article as Exhibit A for why they must have a bias towards me and my firm.
5. “Have You Ever Deposed A Business Valuator?”
This is where a divorce lawyer provides real value. Questioning and tearing apart the opposing party’s business valuator and their logic. Over the course of three hours, a lawyer can pick apart a business valuator’s report and condense the most devastating answers into just a few questions for a final cross-examination in trial.
Every case with a business valuator should have a deposition. Some valuators are extremely well-spoken and true experts in their field who simply can’t be reversed via “gotcha” questions. Others may be able to write a business valuation but do a terrible job at defending their business valuations.
I, personally, would be thrilled to share a transcript of a business valuation deposition I did where a judge subsequently ruled that the business had zero enterprise value.
The above 5 questions will assure you that your potential divorce attorney is competent to represent you in an Illinois business owner’s divorce. The next 5 questions are questions you should be asking so you’ll understand how the Illinois divorce process works for business owners.
6. “If I Started My Business Before I Was Married Is It Non-Marital Property?”
Yes. In Illinois, most businesses are deemed completely non-marital. Businesses “owned before the marriage are…nonmarital property. They are no doubt worth more now than they were then. However, the increase in value of nonmarital property is nonmarital property.” In re Marriage of Kennedy, 418 NE 2d 947 – Ill: Appellate Court, 1st Dist. 1981
Even if the growth of the business occurred all through the marriage, the marriage will be deemed compensated for that growth if the business owner received a salary (every business owner pays themselves).
“[I]f the marital estate reasonably has been compensated for his or her efforts, it shall not be deemed a contribution to the marital estate and there shall be no reimbursement to the marital estate.” 750 ILCS 5/503(c)(2)(B)
Note: this is NOT the rule in Florida where I am also licensed. The growth of a business in Florida will be considered marital value. This means an Illinois business owner with a premarital business should file in Illinois as soon as possible.
7. “Are My Business’s Profits Used To Calculate Child Support And Maintenance (Formerly Known As “Alimony”)?”
Yes. “For purposes of calculating child support [and maintenance], net business income from the operation of a business means gross receipts minus ordinary and necessary expenses required to carry on the trade or business.” 750 ILCS 5/505(a)(3.1)
This includes retained earnings. “[C]ourts should engage in a case-by-case, fact-specific analysis to determine whether retained earnings of a corporation should be imputed to the sole or majority shareholder for purposes of calculating child support.” In re Marriage of Moorthy and Arjuna, 29 NE 3d 604 – Ill: Appellate Court, 1st Dist., 5th Div. 2015
8. “How Is My Spouse Going To Get Half Of My Business And Get Child Support And Maintenance From Me?”
Exactly! They’re not. That’s called double dipping and your divorce lawyer needs to make sure it doesn’t happen.
“Commentators use the phrase “double dipping” to describe the seeming injustice that occurs when property is awarded to one spouse in an equitable distribution of marital assets and is then also considered as a source of income for purposes of imposing support obligations.” In re Marriage of Eberhardt, 387 Ill. App. 3d 226, 232 (Ill. App. Ct. 2008) (citation omitted)
9. “How Can I Pay My Spouse For Their Share Of The Business Without Selling The Business Or Financially Crippling Me?”
You can ask the court to put you on a payment plan. Be aware that a payment plan carries an automatic 9% interest rate on the gross money owed. In re Marriage of Rozdolsky 2024 IL App (2d) 220423-U
10. “How Can We Keep My Spouse From Destroying My Relationships With My Partners, Vendors And Customers?”
Restraining orders and protective orders can make your spouse’s discovery attempts as unintrusive as possible.
Furthermore, any bad behavior on your spouse’s part can result in a claim for dissipation of assets or a separate lawsuit for tortious interference of business.
Obviously, these are all extremely brief answers to serious and complicated questions. I have dozens of articles about the intricacies of Illinois business owner divorce. I have, personally, worked on many business owner divorce cases both through settlement and trial. Contact my Chicago, Illinois divorce law firm today to schedule a consultation with an experienced Illinois divorce attorney.
