Illinois Divorce and Sweat Equity: What Is It Really Worth?

 Posted on November 16, 2025 in Divorce

In many cases, small family businesses succeed not because of capital investments, but because one spouse poured years of unpaid labor and personal sacrifice into building the company. This is known as "sweat equity," and can become one of the most hotly disputed issues during the asset division portion of an Illinois divorce.

Questions may arise as to whether the sweat equity created a business interest for the non-owner spouse. Sweat equity valuations can be complex, yet whether a business is divided fairly often hinges on these valuations. While Illinois courts have developed clear rules regarding sweat equity, the application of these rules may be highly contested.

Whether your spouse is claiming sweat equity in a business you own, or you contributed hundreds of hours of unpaid sweat equity to your spouse’s business, it is essential that you speak to a knowledgeable Kane County, IL family law attorney.  

What Counts as Sweat Equity During an Illinois Divorce?

Sweat equity refers to non-monetary, labor-based contributions that increase the value of a business. Under 750 ILCS 5/503, any effort, skill, or labor performed during the marriage is presumed to be a marital contribution. Examples of sweat equity include:

• Performing physical labor (construction, plumbing, general maintenance) at the business’s physical location for long hours with no pay.
• Managing the operations, customers, or marketing of the business, particularly when the spouse who is the owner is the "face" of the business.
• Acting as an unpaid bookkeeper, receptionist, manager, or performing other administrative tasks that would otherwise require hiring (and paying) staff.
• Taking on all household and childcare duties so that the other spouse can focus on building and running the business.
• Using household funds to support the business through slow periods.
• Helping build the business brand or customer base.

How Does Illinois Law Treat Sweat Equity as a Marital Contribution?

Illinois is an equitable distribution state, which means that assets are divided fairly, although not necessarily equally. This means that even if one spouse owned the business before the marriage, if the business expanded significantly during the marriage due to the other spouse's sweat equity, then that portion of the business could be considered a marital asset.  

Understanding Active Versus Passive Appreciation

In a divorce, active appreciation is the increase in the value of a business that is directly tied to one spouse’s sweat equity or direct contributions. Passive appreciation refers to the increase in a business's value resulting from external factors, such as market forces or industry growth, which is generally considered a separate property. This distinction is key because while active appreciation is considered a marital asset during divorce, passive appreciation may not be.  

How is Sweat Equity Calculated?

The court may use the fair market value approach to determine what a buyer would pay for the increase in the business’s worth due to the sweat equity of one spouse. If the reasonable compensation analysis is used, the court will determine what the spouse would have earned for similar work in the current market. A goodwill assessment determines what percentage of increased reputation or customer base is attributable to the sweat equity of one spouse, while the capitalization of earnings approach is based solely on business cash flow.

Reimbursement Claims and Disputes Regarding Sweat Equity

If the marital estate contributed labor to a non-marital business, the marital estate may have a reimbursement claim to recover the value of those contributions. When full business division is not appropriate, reimbursement claims often become the preferred remedy. Sweat equity cases tend to be messy because many small businesses have informal or incomplete records. The business-owner spouse may downplay the non-owner spouse’s contributions, or the spouses may disagree on the level of unpaid labor performed.

Contact a Geneva, IL Marital Asset Division Lawyer

If your Illinois divorce involves a family business or sweat equity disputes, an experienced Kane County, IL divorce lawyer from McSwain Rapp Law, LLC can help. Our attorneys can work with forensic accountants, uncover hidden contributions, and protect your financial interests during valuation and property division. Call 630-581-2877 to schedule your free consultation.