Business and Divorce Attorney in Naperville, Illinois
How is a business valuation determined in an Illinois divorce?
How is a business valuation determined in an Illinois divorce?
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In high net worth divorce cases involving business owners, complexity arises because tax filings and profit and loss statements often do not accurately reflect actual income or assets. Many business owners might underreport their income, making it appear lower than it truly is, despite living a lifestyle that suggests otherwise.
To address this, attorneys take a methodical approach. They start by subpoenaing all relevant financial documents, even if the opposing party is reluctant to disclose them. By examining deposits across various accounts, discrepancies become evident—such as reported annual income being significantly lower than the monthly deposits seen in their bank accounts. This allows the attorney to use a method known as “imputation of income,” where they calculate an accurate income based on actual financial behavior rather than what is reported on taxes.
In these cases, deductions like business expenses (e.g., car payments, cell phone bills, and meals) are often added back to the individual’s income when determining child support and spousal maintenance obligations. The process requires a detailed examination of financial records, but it effectively uncovers the true income.
Assessing the value of a business is another challenge, particularly for service-based businesses where the owner’s involvement is crucial to the business’s success. For instance, the intrinsic value of a law firm or a photography business may be difficult to determine without the owner actively working in it. In such cases, while tangible assets like photography equipment can be appraised and divided, the overall business valuation might be disputed if it heavily relies on the individual’s skills and reputation.
To establish a fair business valuation, attorneys often enlist the help of professional business evaluators. These experts are valuable resources, especially in high-stakes divorces, to determine the business’s worth accurately. In the Chicagoland area, there are several highly regarded business evaluators who provide critical insights during these complex cases.
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Naperville, IL family law attorney Melissa Kuffel discusses how a business valuation is determined in an Illinois divorce. She explains that some of the most complex and challenging divorce cases involve high-net-worth individuals who are business owners. The complexity arises from the fact that business owners’ reported income on tax returns or profit and loss statements may not accurately reflect their actual income or assets.
When it comes to determining income, it is common for one party to accuse the other of hiding money or manipulating their finances. In such cases, thorough investigation and document collection are crucial. Subpoenas are issued to obtain all relevant financial records, regardless of the other party’s cooperation. By examining bank accounts and analyzing deposits and withdrawals, it becomes possible to establish a more accurate picture of the individual’s income. This process is called imputation of income, where the actual financial transactions and spending habits are considered instead of relying solely on reported income. Additionally, certain expenses that are typically deductible, such as car expenses, cell phone bills, and meals, may be added back to the individual’s income for child support and maintenance calculations.
Determining the value of business assets can also be challenging. For instance, in service-based businesses like law firms or photography studios, establishing an inherent net worth may be difficult. While tangible assets like equipment can be considered marital property, the overall net worth of the business itself may not be as straightforward. In such cases, employing the services of business evaluators can be helpful. These professionals specialize in assessing the value of businesses and can provide valuable insights and expert opinions to assist in determining the value of the business assets.
Ultimately, with meticulous examination, thorough document review, and the assistance of professionals, such as business evaluators, it is possible to navigate the complexities of divorces involving high-net-worth individuals and business owners.
