Divorce for Business Owners

When a marriage ends and a business sits at the center, every decision carries weight. We pull back the curtain on how high-net-worth divorces actually work for business owners, from the first request for documents to the last line in a valuation report. With host Jonathan Merel and guests David Zwaska and Ashley Margason, we dig into the real mechanics: what clean books look like, how dissipation and commingling show up in records, and why credibility can be the most valuable asset in the courtroom.

We break down the practical checkpoints that shape outcomes. You’ll hear how judges evaluate marital versus non-marital interests, when reimbursement claims matter, and why retained earnings are a constant battleground. We talk strategy around prenuptial agreements—how to define business income, protect reinvested profits, and draft language that stands up under cross-examination. And because valuation is part art and part science, we compare neutral experts versus dueling experts, explore common methodologies, and explain how reputation and rigor sway the decision-maker.

The conversation also covers what not to do once a filing lands: changing accounting methods, altering control, or reassigning ownership midstream can erode trust and spike costs. For spouses who co-own a company, we map paths to preserve operations, shield employees, and keep value intact. Finally, we look at structuring buyouts that align with cash flow so the business survives the settlement.

If you’re a founder, partner, or owner staring down a split, this is a roadmap to protect your company and your future. Subscribe, share with a colleague who needs it, and leave a review with your top question about business valuations or prenups—we’ll tackle it in a future episode.

Transcript

Framing High-Asset Business Divorces

Jonathan Merel 0:00

Welcome to ATD, the All Things Divorce podcast. I'm your host, Jonathan Merel. Welcome to the All Things Divorce Podcast. I'm your host, Jonathan Merel, here for episode seven. I'm really excited about today's episode. I'm fortunate to have two of the best lawyers in the city of Chicago, which I am lucky enough to call my partners. We've got David Zwaska, Ashley Margason. Welcome to the show.

Ashley Margason 0:42

Thank you.

Jonathan Merel 0:43

Thank you. Glad to be here. So today's episode, we're going to focus on divorces for business owners, which often equate to high net income, high asset divorce cases. So we specialize in this, we deal with these situations all the time. Business owners come to us for our expertise on these matters. And again, I'm fortunate enough to have with us today two of my partners who deal with these issues day in, day out. It's important to have a firm who specializes in high net worth divorces, who specializes in business owner divorces because these can be very complex. They can get very tricky. They involve experts. We'll get into all that stuff. But um David and Ashley obviously deal with these situations all the time. And I'm going to start by just kind of spitballing some questions and um I'm going to start with your backgrounds. Why don't you guys both tell me your backgrounds? Dave, I'll start with you. Um, how did you come to specialize in this? I know it's something that gradually lawyers kind of get put into. It's it's tough for young lawyers to kind of get thrown into high asset, complex business owner divorces, but tell me how you keep who how you came to specialize in it.

David Zwaska 1:52

Sure. Yeah, I mean, I've always been a numbers guy. I started college as a math major before I moved into law. And so analyzing financial data, tax returns, things like that, I've always really enjoyed it. And so as I got into family law work, I really did enjoy working with business valuations, analyzing those, being able to advise clients on how the uh the valuator came to these numbers and then explaining that to the judge. Sure. Ashley, what about you?

Ashley Margason 2:19

Um my background is in accounting. I never knew it would be as relevant as it is as a divorce attorney, but it's incredibly important. It's been incredibly beneficial and helpful. Um I also really have always enjoyed tax law, which also has huge implications in a divorce and understanding those things, analyzing and reviewing a tax return, knowing what you're looking for, what numbers matter, what don't. So I have been able to utilize that throughout my career as a as a family law attorney. Really right from the beginning when I was a really young attorney. Even when I didn't necessarily understand the law and the implication of all of it in the divorce context, I was able to use my financial background and knowledge to really help with the with the cases and clients. For sure.

Jonathan Merel 3:01

And you guys have certainly harnessed your experience because you do need that. I mean, we go to law school and you know, you learn how to think like a lawyer, you learn how to be an attorney, and then obviously we get into our specialization, which is family law. But, you know, young lawyers coming into this, if you don't have some sort of background, this is like a really big learning curve because you're getting thrown stuff from comprehensive, detailed corporate tax returns to valuations to you know stock issues. There's a lot of stuff that you really don't have a background in just by doing a regular university curriculum and going to law school. So we have to learn that we obviously also have to communicate with our experts who are often educators for us in the process. So um it's important that obviously we communicate with our experts, but let's get right into it. Um, we've all represented both sides of the coin here when it comes to um the business owner who's been truthful and easy to work with, and the business owner who has been deceitful and you know tough to work with. And that often equates to the outcomes we get. I guess, Dave, I'll start with you. Um give us an example of a case that went well and like qualities that equate to a good outcome when we're representing a business owner.

David Zwaska 4:22

Sure, yeah. So I can think of a case where it went pretty well. In this case, we hired a neutral financial expert, and that required our client to turn over all the tax returns, all the profit and loss statements, K1s, et cetera. And there weren't any issues with the documents. They were all above board. There was an accountant where there was transparency, and everybody could talk to the accountant to verify the numbers. Based on that, we were able to come up with a value of the business that everybody could agree upon, and then it was just a matter of allocating that between the spouses. So that type of transparency, clean records, trustworthy things. And also there was no blending of personal and business expenses in that case.

Jonathan Merel 5:00

Right. So that that's an important thing. You, I mean, you touched on a lot of things there. Obviously, the takeaway there is if you're a business owner and you're straightforward, you know, your books are straightforward, done the right way, you've got a good accountant, a good CPA, a good controller, whatever it may be, that often is going to equate to a good outcome, not necessarily prolonged litigation and protracted litigation. But then we have the other side, and we've all represented both sides. Ashley, I'll ask you about this. When we have a business owner who isn't so straightforward, who doesn't necessarily tell the story like it is, um, and it's not it turns into a bad outcome. What are some red flags we look for in our clients, whether it be our client or we're representing, you know, the someone, someone's on the other side doing these things, what are some red flags we should all look out for?

Ashley Margason 5:54

I think that the biggest thing um in representing somebody who is self-employed, and it's going to vary from business owner to business owner, because if you have partners and you're operating certain types of partnerships or S corporations, that individual might not have a ton of control to hide things. Um, but when you have somebody that's in a position to move things around, move assets, income, et cetera, around a company, you really have to dig into those records as the attorney, whether you're representing that party or you're representing the spouse of that party, because you need to know what's going on and being able to explain that to the judge. So make sure that what they're saying is matching what's in those records. Part of our obligations of due diligence as attorneys. And you're always better off being the more knowledgeable attorney in that courtroom that knows what these financial documents actually say, what they actually show. And you put your client in a better position with the judge. And that includes the client that might not be totally forthcoming with everything, right?

Jonathan Merel 6:53

Yeah. And again, I mean, we've all handled these cases where we're on both sides. And, you know, as a lawyer, you don't always represent the the good person. Um, and, you know, from my experiences, I'm sure both of you have experience, when you have a person who commingles a lot of his personal expenses with the business, and you know, this is usually when you have perhaps like, you know, a single owner of a company, they start to entangle their personal finances with corporate finances, which just can create a huge mess, not only with the books, corporate books, but obviously in determining the person's income for purposes of the divorce, um, figuring out how to divide up a corporation, value a corporation. But, you know, when you get a client who's engaging in dissipation or is having an extramarital affair and paying those expenses of the affair with through the business, gambling. I mean, we've seen we've seen these things, Dave, especially in some recent cases that we've worked on where it just creates a huge mess with creating dissipation issues and all that, right?

Transparency, Clean Books, Better Outcomes

David Zwaska 7:56

Absolutely. Yeah. And I can think of a case too that I had about 10 years ago where we were in a contested hearing and the testimony's being taken, and the business owner was testifying to what his income was. And on the tax return, what's something like $30,000? But then as the testimony came out, his true income was something around $200,000. And what he was doing was he was running all of his personal expenses through the business, including, and this is unbelievable, he was paying the maintenance and the child support through the business. He was paying his personal mortgage through the business, his car, his cell phone, et cetera. And it actually came to the point where the judge stopped the hearing and said, look, we need to resolve this because there's some serious tax issues. And in that case, the business owner was relying upon his accountant. And so part of it was just saying, Well, my accountant files all this stuff. Just finger point. He said I could do this. And the law is very different. You know, when setting maintenance and child support, you're going to be looking at somebody's true income, not just what they report on the tax return.

Jonathan Merel 8:59

Exactly. All right, let's move into our next topic here. Obviously, this is all related to business owners, business owner divorces. Um, oftentimes in business in divorce cases where we're representing a business owner, we have to make the classification is the business a marital business or a non-marital business? Um, let's talk about how that classification works. It can get very detailed and tricky, but we're just kind of gonna do this from a high level. Ashley, I'll ask you, how do we classify on its face essentially whether a business is marital or non-marital?

Ashley Margason 9:35

Um, I mean, for that, for kind of straightforward purposes at a high level, it's no different than any other asset. It's presumptively marital until you can prove otherwise. And if we fit into one of seven, eight categories from the law, then it's non-marital. Most commonly we're going to see businesses started before the marriage. But within that, then comes the complexity in a lot of cases with is there any type of if somebody's uh say, for instance, a spouse is working for that non-marital business, right? Is their contribution something that entitles the marital state to reimbursement? What exactly does that look like? Has the marital state already been fairly compensated? It's it gets very complex. The case law is a little all over the place on those issues. Um, but but that's you know, that's where it kind of starts is do we fit into a non-marital category? And then do we have a question of reimbursement owed to the marital estate?

Jonathan Merel 10:34

Right. Because it can get it can kind of be paid back both ways. I mean, one, the court can consider the non-marital estate of a party in deciding how to divide up the marital estate. So if you have a non-marital business that's allocated to one person, perhaps that means the other spouse, if it's a long marriage, is entitled to a bigger portion of the marital estate. At the same time, if it's considered to be a marital business, the court has the ability to decide how to divide up that marital asset. And based on, you know, the story behind the business, who's put the their, you know, work and hard work and time into the business, how the whole business was set up, perhaps the court decides that they want to allocate a disproportionate share of the value or the business to one of the spouses. So it can work both ways. It is similar to how you would treat other marital and non-marital property, but it can get a little trickier too.

David Zwaska 11:27

Absolutely. I mean, I'm thinking of a case where let's say you have a $2 million estate and the business is worth $1 million, and the business was started by spouse one before the marriage. Okay, that's that's a premarital business. But then the rest of the assets, $1 million, a judge might say something like, okay, I'm gonna give the other million dollars to the other spouse. So, yes, on the one hand, one person's getting 100% of the business, but the judge is equitably allocating the rest of the assets to the other spouse. So we see that a lot too, because especially people that started their own businesses before the date of the marriage, they want to keep that. And the judge might say, Okay, you'll keep your business, but the other assets, I'm gonna split those so that it still comes out to a you know roughly 50-50 allocation.

Jonathan Merel 12:14

Let's talk about prenups. Obviously, business owners, if they're going into a marriage, a prenup is something that's probably gonna be thought about, something that their advisors are probably going to discuss with them. Um, if you are a business owner, you're heading into a marriage, what do you do to protect yourself?

Ashley Margason 12:32

Oh, you have to get a prenuptial agreement, really. It's the I tell everybody the marital and non-marital classifications in Illinois might look straightforward on paper, but the gray areas that we run into with commingling, transmutation, which estate contributed, which state owes the other. It's it's a mess. So when it comes to a business specifically, you can save yourself a lot of trouble, a lot of issues, any of these messy claims and needing to trace where money went with a good prenuptial agreement, and you really start at highlighting what is looking at the income that somebody's getting from a business. How are we defining that income? Uh, are we keeping it out of the equation at all for any consideration, for support purposes, for, you know, if it's put into an account being allocated as property. Um, and really importantly, depending on the type of business is retained earnings. How is that being treated and how are we dealing with that? Because the case law is varying on that. It's getting a little better, but it's just such a huge open question. And for business owners that don't necessarily take all the income or profits out of their company every year and are keeping it in there, protect that. Keep that in your business for your abilities to run your business rather than possibly having something that a judge looks at and calls it income.

Red Flags, Commingling, And Dissipation

Jonathan Merel 13:48

And it's important that the prenup get pretty detailed, especially when you're addressing, you know, what is oftentimes the biggest asset for any single person and ultimately of a marriage, if it's something that's acquired or started during the marriage, but you really have to get detailed language in the prenup regarding the business, how it would be divided, how it would be treated, if it's non-marital, you know, how you're going to look at certain things, because uh a poorly drafted prenup, when it comes to business ownership, can get really picked apart and potentially voided by the court. So the last thing you want to do by doing something that is supposed to protect you is create another issue which could be litigated before the divorce even really gets going, whether you're to when you're talking about is the prenup itself valid. Um, all right, so that's really it on prenups. The takeaway there is, of course, if you're a business owner, you're going into a marriage, whether it be your first marriage or second marriage, your business is your baby. You want to protect your baby, and to do that, you should get a prenuptial agreement for sure. Um, all right, let's go on to the next topic here. And again, we're still talking about businesses and business owners getting divorced. Obviously, when we get into a divorce that involves a business owner, one of the biggest topics becomes the battle of the experts. And when you have a business, there are a lot of things that have to get determined before a court or even the parties can attempt to settle it, to divide the business, to figure out how are we going to resolve this issue. And a lot of that look is because a lot of the attorneys obviously will look to experts in these situations. And it might be a mutual expert where the parties agree to use one expert, or that might turn into multiple experts, where each party has their kind of hired gun, so to say, and what they're gonna give obviously estimations and opinions of the value of the business, perhaps the income of the business owner, all these things take a lot of time. Dave, I know we've had tons of experience with this. Give us some more light on obviously how this works and how this comes about when we have a division, a business owner divorce.

David Zwaska 15:58

Yeah, sure. So I'm thinking of a few cases. One is where we had a neutral expert, and that person was the clearinghouse, the repository for all the information. And that person did a great job and we were able to settle on a value of the business just based on that one neutral mediator. I'm sorry, neutral expert. But then we had another case where the court also appointed a neutral financial expert. And unfortunately, that report didn't work out. Each side then got their own retained expert and picked apart the neutral expert's report. And so that highlights an issue where you have to make sure that your neutral is looking at the right information, doing the right analysis. Um, but it certainly can be cost effective to start with a neutral expert because otherwise you do have these battle-the experts. And there is more art than science in a lot of these valuations. There's also different approaches that they can take. And one valuator can look at um a certain methodology for valuing the business. And then the other person can come in and say, Well, that was the wrong approach. I'm gonna use this one, come up with a very different number, and the judges left kind of scratching their heads.

Classifying Marital Versus Non-Marital Businesses

Jonathan Merel 17:09

So you could have experts who literally have valuations that are millions, tens of millions of dollars apart. And like you touched on, there is an art form to it. I mean, to kind of simplify things, you know, when we do a home appraisal, you know, when there's an issue as to the value of a house and you have residential appraisers, and you know, maybe it's a million-dollar house, but you know, one appraiser is saying it's worth $750,000, and they're probably doing the appraisal for the person who's keeping the house, and then you got the person who's getting bought out of the house, and their appraiser says it's worth $1.25 million, and you're kind of stuck in the middle. So there is an art form to it. Um, and a lot of it often comes down, if you go to trial, is you know, what's the reputation of the expert? You know, how many times have they done this? Are they familiar with the court system? Is the judge familiar with them? You know, the company they work for, the firm they work for, you know, are they accredited? A lot of this comes down to, you know, the experts themselves, their credentials. Um, but I mean, experts, you really want to make sure you get a good expert, right, Ashley. I mean, if you don't get a good expert and your expert is lazy or not doing their job or not keeping up, I mean, that could lead to really difficult problems for the lawyers for presenting evidence at trial, correct?

Ashley Margason 18:27

No, absolutely. You want to go with somebody that has a good reputation. And I don't has anybody ever seen somebody who's hired an expert that is so clearly a hired gun work out?

unknown 18:37

Right.

Ashley Margason 18:37

No, you pour tens of thousands of dollars into this. You're trying to put this expert who's clearly slanted to your side up against maybe the court's neutral expert or the even the other party's expert that just doesn't come off like that. I've never seen a judge buy it. It's a waste of time, a waste of money. So you go with experts that know what they're doing, know what they're talking about, have a good reputation.

Jonathan Merel 19:02

And again, experts are gonna get really picked apart, just like you know, the most important witness in the divorce case, possibly. You know, they're gonna be deposed, they're gonna be asked about their credentials, they're gonna be asked how many times have you worked for the law firm that you're representing, how many evaluations have you done for this lawyer, that lawyer. So they're really gonna get picked apart. And you need a lawyer who's going to pick them apart and really shed light if there is some shadiness going on. Um, this is crucial because at the end of the day, you know, this is about the reputation and credibility of the experts as much as it is everything else. And yes, numbers are important, but at the end, each expert's gonna have a number that they're saying is their conclusion as to the value of the business. And the court ultimately is gonna have to pick a number, whether using one of the experts' numbers or somewhere somewhere in between, which you know could be millions and millions of dollars at stake. So experts are crucial. The relationship between lawyer and expert is crucial, and obviously the credibility of the expert is very crucial in determining the outcome of the case. Um, all right, we're moving on. I like our conversation so far. You guys are doing great. Thank you for joining us. Um, all right, we've got a business owner, the divorce is filed, they've been running their business for many years, presumably. Should divorce should the business owner do anything to change the status quo in how the business is run? And what are some red flags if all of a sudden we've got business owners kind of shifting gears in how they run the business? What problems could those lead to, Dave?

David Zwaska 20:42

Yeah, good question. So the general rule is going to be maintain the status quo, and you're gonna find that in other aspects of divorce too. You don't want to make any major changes because that could subject the business to scrutiny. It also could uh could lessen your client's credibility. Um, and some of the things that we see happen sometimes is somebody will be on a cash basis and they'll move it to accrual. They'll be an S-corp, but they'll move it to a C Corp. They'll have the percentage ownership where they're they uh they're the controlling shareholder, but now all of a sudden somebody else is the controlling shareholder. You don't want to make those changes because that raises red flags. Also, and I've had this situation happen, we're we're knee deep in a business valuation, and then someone does make that change. And it doesn't just lessen the credibility, it also increased the cost because now everybody needs to update the evaluation because the numbers are different. So, bottom line, maintain the status quo.

Jonathan Merel 21:37

Yeah, maintaining the status quo is is huge. And as experienced attorneys, you know, we've not obviously seen people kind of change how things are going, but we often encounter this, Ashley, is all of a sudden you might have two people that are working in a business and a divorce starts, and then all of a sudden someone's tossed out of the business. That's haven't we seen that a bunch?

Ashley Margason 21:58

That happens all the time, is thinking of the scenario in which you have spouses that are operating a business together. Just I I'm new into it, relatively new into a case that I've come in and taken over for a prior attorney. That is just it's it's a mess, right? It's a mess trying to help these people unpack this. It's a mess trying to force two people that do not like one another anymore. There's no trust. Whatever the reason is that they're in this office, there's a there's a reason for the divorce. They're supposed to maintain and operate a business together still. It doesn't work a lot. And it it gets difficult. And right.

Prenups For Business Owners

Jonathan Merel 22:32

So you understand the reason almost why they're trying to separate themselves as business owners, but obviously one person isn't gonna really be thrilled about being thrown out of a business that they're working with. But at the same time, you know, how practical is it for two people who are in, you know, perhaps a very ugly divorce to be expected to cooperate and run a business, you know, business as usual, when you have all this other stuff going on. So that those are often issues that arise and lead to emergency motions or injunctive orders early on in the case when you deal with business owners, because you have situations where two people are working shoulder to shoulder every day as partners, which are also husband and wife, and all of a sudden there's a divorce going on, and husband and wife don't get along very well, and they're not really compatible when it comes to their marriage, but also the business itself. So it can get really tricky, and then you know, just to even go further down the rabbit hole, that can impact employees who don't know how to act, and maybe certain employees are partial to one spouse and not the other. It could just get really messy. And if this is like a closely held family business, you know, the ramifications could really rattle the family, not just the immediate family, but extended family and the employees too. Um, all right, we're cruising along. Um let's see, let's talk about one more question before we get to the end here. Um and this I think we've answered this already, but like why why is divorce itself really high stakes for business owners? I guess we've touched on obviously the fact that you know valuations could be millions of dollars apart, but I think at the end of the day, a business is something that people have grown and cultivated like a child itself and is oftentimes their biggest asset, which makes it, you know, the biggest issue in a divorce case that involves a business, right, Dave?

David Zwaska 24:32

Absolutely. Yeah. I mean, for a lot of the business owners that we represent, this is something that they've dedicated their life to. They've worked far more than 40, 50 hours a week. Maybe their name is on it. And and this comes into the valuation issues of, you know, personal goodwill, enterprise goodwill. And so this is something that they identify with. They they've poured so much time and sweat into it. And now the idea that they're gonna have to give up some portion of it is very difficult. It's almost like a child to them. And so this is what makes it high-stakes litigation is this is a person's business, this is their livelihood, and it's now being potentially divided uh by a court. And that that's huge. Anything to add, Ashley, on that?

Ashley Margason 25:13

Yeah, I think that's just what it is because unlike a, you know, maybe somebody who's working for somebody else in a W-2 wager 1099, whatever, this business is a livelihood. It's a means of your support for yourself. And while yeah, people are gonna have support obligations, it's the potential property payout on a business too. How do you structure these things? How do you make sure if you're representing a client who owns the business and may have to make some payout, you know, getting everything into a good position or either presenting to a judge for a judge to order it or, you know, working it out in settlement negotiations so that you're not bankrupting this person or making it impossible for them to pay this out and not lose their the means for for for their income. Um, I mean, it really, it really matters.

Jonathan Merel 25:59

Absolutely. I couldn't have said it better myself. Well, we've covered a lot of ground here in a short period of time. David, Ashley, I thank you for coming. We're gonna do three quick takeaways. I'll have you guys give like a little quick response to each. Three takeaways. One, prenups are important to help protect business owners. Why?

David Zwaska 26:18

Yeah, I mean, I'm thinking of a case where we had a prenup that said uh the first spouse is gonna keep the business, and that's what the person thought that they wanted. However, we also need to say any assets acquired by the business, any income from the business, that's also going to be non-marital. Without a prenup, that that wouldn't have been in there.

Jonathan Merel 26:36

Right. All right. Ashley, our second takeaway dishonesty can lead to prolonged and expensive litigation.

Ashley Margason 26:45

Yes, absolutely. And I guess whether it's your client or from the other side, you have to be the most knowledgeable attorney in that courtroom. You need to know the facts of your case, you need to know these records to call out the dishonesty coming from the other side or to put a stop to it from your client because you got to protect them from themselves sometimes sometimes and not have them lose credibility in front of that judge. Absolutely.

Jonathan Merel 27:06

All right, I'll handle the last takeaway. Hire good experts and hire good lawyers. I have two great lawyers next to me. We're all part of Merel Family Law. David Zwaska, you can find him on our website, Merel Family Law. Ashley Margason, you can find her on our website, Merel Family Law. You can find me on Merel Family Law. Thank you guys for joining us. This was a great, very educational episode. If you're a business owner, listen to this once, listen to it twice. It's great information. But if you are a business owner and you are considering a divorce or in the midst of one and aren't happy, reach out to us. We'll take good care of you. Thank you everyone for joining us for the All Things Divorce podcast. Hope to see you again soon.