Can a Business’ Retained Earnings Be Considered Marital Property?

April 23rd, 2015 at 2:54 pm

retained earnings, division of property, Chicago divorce attorneysIn short, yes. When a couple builds a business together during their marriage, both partners have the right to seek a portion of the business’ value during their divorce.

Retained earnings are the profits that a company makes which are not distributed back to its shareholders. They are the profits that are held onto in a reserve and used for specific goals, such as paying off company debts, or reinvested into the business.

Shares in a company can become a contentious topic among divorcing couples because of the prospect of retained earnings. Retained earnings contribute to a company’s overall value. Shareholders have an interest in these earnings and a say in how they are used. If the court determines that an individual’s shares in a company are marital property, their value must be divided among the spouses. If one’s shares are nonmarital property, the court must determine the spouses’ contribution to the company to determine a fair distribution of their value.

Illinois is an equitable distribution state, which means that property is not necessarily divided exactly 50/50 between divorcing parties. Instead, the division of a couple’s property is done according to a variety of factors, including each partner’s needs and personal resources.

Marital Property vs. Non-Marital Property

Generally, all property acquired during a couple’s marriage is presumed to be marital property. This includes the couple’s home, any joint bank accounts, and any businesses that the couple starts together. A business that one partner started before the marriage, but considerably expanded during the marriage with marital money, credit, or labor, may be also considered to be marital property.

When determining whether a company’s retained earnings may be considered to be marital property during a divorce, the following questions must be asked:

  • Are the retained earnings calculated as part of the company’s total value?
  • Are the retained earnings being used for corporate business?
  • How much control does the spouse involved in the business have to pay out the retained earnings as dividends to him or herself?

Whether other individuals are part owners or shareholders in the company and what the couple chooses to do with the business upon their divorce can also determine whether its retained earnings may be divided among the spouses. Some couples choose to sell their businesses and split the profit while others opt to continue them, either jointly or with one spouse buying out the other’s share of the company.

Divorce Attorneys in the Chicago Area

Anderson & Associates, P.C. is proud to serve clients throughout the Chicago area in our five accessible office locations: downtown Chicago, Orland Park, Northbrook, Schaumburg, and Wheaton. To discuss your unique circumstances, call 312-345-9999 to speak with one of the experienced Chicago divorce attorneys at our firm.