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Kane County Business Divorce LawyerBuilding a business takes years of effort. The last thing you want to have happen is to lose the business, or a substantial portion of it, in a divorce. Three ways to protect your business in a divorce include: (1) Creating a prenuptial or postnuptial agreement, (2) Keeping clear documentation that the business was acquired with non-marital assets, and (3) Seeking early advice from a divorce attorney with substantial experience in handling divorces for business owners.

Is My Business Marital Property?

Under Illinois divorce law (750 ILCS 5/503), all marital property is subject to an equitable division between the spouses. Marital property includes all assets and debts acquired by either spouse during the time of the marriage, including income earned by the efforts of either spouse. Therefore, if you started a business during your marriage, it is most likely marital property.

However, your business will generally be considered your separate, non-marital property if:

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Kane County Divorce Law FirmIf you want to live comfortably in retirement, you will need an income of at least $50,000 per year for an estimated 15 to 20 post-retirement years. That means you will need $250,000 to $500,000 in retirement savings to supplement your Social Security benefits. It should not come as a surprise, then, the division of retirement benefits is becoming one of the most contentious points in Illinois divorce cases. You will want to do everything you can to get your fair share of retirement benefits that you and your spouse have accrued during your marriage.

You might think that your entire pension or 401(k) plan at work is your separate property since it is under your name only and is tied to your employment. However, under Illinois law, any pension benefits or retirement savings built up during your marriage are a marital asset subject to a fair and equitable division. You will need to use historical records to determine what percentage of your retirement savings were accumulated prior to the marriage versus during the marriage. You will want to scrutinize these calculations to get as much of your account as possible designated as a non-marital asset. On the other hand, you will want to get as much of your spouse’s account as possible designated as a marital asset.

You might also think that one retirement account is the same as the next, but that is not correct. When you reach retirement age and start to withdraw money from a 401(k) or a tax-deferred IRA, you must pay ordinary federal income tax on the entire amount you withdraw, both original contributions and earnings. However, when you withdraw money from a Roth IRA, you will pay no federal income tax on any withdrawals as long as you are at least age 59½ and have had the account for at least 5 years. Thus, for someone with a 15% average federal income tax rate, $1,000 in a Roth IRA is worth 15% more than $1,000 in a tax-deferred IRA or 401(k). This is a good reminder of how important it is to understand the tax consequences of divorce decisions.

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