Dividing a closely held business in an Illinois divorce can be very challenging. It gets even trickier when the business owner’s future income is also considered for maintenance or support. Sometimes, the same economic value shows up in more than one part of the divorce process, which is known as “double dipping” or double counting.
This often happens when things like business goodwill, future earning power, retained earnings, compensation, or business income are used to boost a company’s value and then show up again in another financial calculation. Illinois law does not consider every repeated use of income to be improper, so it is important to carefully review how the business was valued and how the court is using the same financial information elsewhere in the case.
In a business-owner divorce, double dipping generally refers to the concern that the same economic benefit is being counted twice against one spouse.
For example, imagine a spouse owns a professional practice. A valuation expert might look at the company’s earnings and decide that part of its value comes from the owner’s ability to earn money in the future. If that same future earning ability is also used to support maintenance or a larger property award, the owner might claim that the same value has been counted twice.
Illinois courts have dealt with this problem most directly in cases involving personal goodwill.
The Illinois Supreme Court explained in In re Marriage of Zells, 143 Ill. 2d 251 (1991), that professional goodwill tied to a person’s future earning capacity should not simply be treated as an additional divisible marital asset when that same earning capacity is already reflected in support or property considerations. The court reasoned that using the same personal earning capacity in both places could create an improper duplication. That principle was later discussed and applied in In re Marriage of Talty, 166 Ill. 2d 232 (1995), and In re Marriage of Schneider, 214 Ill. 2d 152 (2005).
Under Section 503 of the Illinois Marriage and Dissolution of Marriage Act, 750 ILCS 5/503, marital property generally includes property acquired during the marriage, subject to statutory exceptions. A business or ownership interest acquired during the marriage may therefore be part of the marital estate.
Section 503(k) directs Illinois courts to use a fair market value standard when determining the value of property for division. The valuation date is generally the date of trial or another date agreed upon by the parties or ordered by the court.
It can be hard to figure out the fair market value of a privately held company because there is no public stock price to show what the business is worth. So, a valuation might look at things like earnings, assets, debts, cash flow, market conditions, customer relationships, management, and other financial details.
The way a business is valued matters because some methods focus a lot on future earnings. This is where the risk of double counting becomes especially important.
One of the most important distinctions in an Illinois business valuation is the difference between personal goodwill and enterprise goodwill.
Personal goodwill is connected to the individual owner. It may arise from that person’s reputation, personal relationships, professional ability, name recognition, or individual ability to attract customers.
Enterprise goodwill is connected to the business itself. It may arise from the company’s name, workforce, systems, location, contracts, intellectual property, recurring customers, or other characteristics that can remain valuable even if the owner leaves.
Illinois courts have recognized this distinction.
In Schneider, the Illinois Supreme Court explained that the duplication concerns involving personal goodwill do not necessarily apply to enterprise goodwill. The court noted that a closely held corporation may have both personal and enterprise goodwill, and enterprise goodwill may properly have independent value. That’s why we pay close attention to how much of a business’s value depends on the owner personally and how much belongs to the company itself.
The issue can be illustrated with a professional practice. Suppose a dentist, physician, lawyer, accountant, or other professional owns a practice that produces substantial income. Part of the practice’s success may depend almost entirely on the owner’s personal reputation and ability to attract clients or patients.
If a valuation assigns a large dollar amount to that personal earning capacity, and the court then separately relies on the same earning capacity when setting maintenance or distributing property, the owner may argue that the same economic factor has effectively been counted twice.
The Illinois Supreme Court addressed that concern in Schneider. Citing Zells and Talty, the court held that where personal goodwill was already reflected in the statutory property-division factors, counting it again in the value of the professional practice would be duplicative.
This does not mean every business valuation involving earnings is improper. It means we must determine exactly what is being valued and whether the valuation includes something already being accounted for elsewhere.
Maintenance is governed by 750 ILCS 5/504. Before awarding maintenance, an Illinois court considers numerous factors, including each spouse’s income and property, needs, present and future earning capacity, standard of living during the marriage, duration of the marriage, age, health, employability, and other relevant financial circumstances.
These factors can overlap with information used in a business valuation.
For example, the business owner’s earnings may affect the value of the company under an income-based valuation method. Those same earnings may also be relevant to whether maintenance should be awarded and, if so, how much.
That overlap does not automatically make the result unlawful. Illinois law is more nuanced than a simple rule that income can never appear in two calculations. The key question is whether the same underlying asset or economic value has been duplicated in a way that creates an inequitable result.
This distinction is critical. Illinois courts have rejected double-dipping arguments in some situations. For example, accounts receivable may be treated as a business asset even though they will later be collected as income.
In Schneider, the Illinois Supreme Court distinguished accounts receivable from personal goodwill. The court explained that accounts receivable represent money already earned, even though it has not yet been collected. Because the value already exists, including receivables in the business valuation does not necessarily constitute improper double counting merely because those funds will later be received.
Similarly, Illinois appellate courts have recognized that income generated by assets awarded in the property division may still be considered for maintenance or support purposes in appropriate circumstances. In re Marriage of Lugge, 2020 IL App (5th) 190046, addressed such an argument and explained that considering investment income did not necessarily constitute improper double counting. That is why we do not treat “double dipping” as a slogan. We look at the precise source and character of the money.
Another area of dispute involves the business owner’s salary. A valuation professional may determine that the owner is receiving compensation above or below what the business would have to pay a replacement executive. The valuation may then “normalize” compensation by adjusting the company’s earnings.
That adjustment can substantially change the business value.
Suppose an owner receives $300,000 annually, but a replacement manager would reasonably cost $200,000. A valuation might treat the additional $100,000 as excess compensation and add it back to business earnings.
If those increased earnings are then capitalized to increase the value of the business, we must examine whether the same $100,000 is also being treated as completely available personal income for maintenance. That does not automatically establish impermissible double counting, but it is exactly the type of financial overlap that deserves close scrutiny.
Section 503(d) of the Illinois Marriage and Dissolution of Marriage Act requires courts to divide marital property in “just proportions” after considering relevant factors. Those factors include each spouse’s economic circumstances, income, needs, whether the property division is in lieu of or in addition to maintenance, and each spouse’s opportunity to acquire assets and income in the future. 750 ILCS 5/503(d).
This statutory structure shows why the business valuation cannot be examined in isolation.
If one spouse receives the business and the other receives a large offsetting property award, the court must consider the financial effect of that distribution. If the business owner must borrow heavily to fund a buyout, that obligation may affect future cash flow. If the non-owner spouse receives other income-producing assets, those assets may affect the broader financial picture.
A valuation number by itself does not tell the entire story.
Two qualified valuation professionals can review the same company and reach substantially different conclusions.
One may use an income approach that gives substantial weight to future cash flow. Another may rely more heavily on assets or market comparisons. They may also disagree about reasonable compensation, capitalization rates, discounts, non-operating assets, debts, goodwill, or extraordinary expenses.
Small changes in these assumptions can produce major differences in value.
We therefore examine not only the final number but also how the valuation professional reached it. If the methodology improperly capitalizes personal earning capacity, treats personal goodwill as enterprise goodwill, or uses an income stream inconsistently with the maintenance analysis, the valuation may deserve challenge.
Business owners and their spouses should understand the double-dipping issue before agreeing to a property settlement.
Once a marital settlement agreement is signed and incorporated into a final judgment, correcting an unfavorable financial structure can become much more difficult.
We want to know how the business was valued, what income assumptions were used, whether goodwill was included, how the buyout will be funded, and whether maintenance calculations rely on the same financial components. These issues can affect hundreds of thousands of dollars in a high-value divorce.
When a closely held company is involved in a divorce, a valuation mistake can affect far more than the property division. It can also influence maintenance, future income, the structure of a buyout, and each spouse’s financial position after the marriage ends.
At Keller Legal Services, we represent clients in complex Illinois family-law matters involving business ownership, property division, valuation disputes, maintenance, and other significant financial issues. We examine how the business was valued, what assumptions were used, whether personal and enterprise goodwill were properly distinguished, and whether the same economic value may have been counted more than once.
If you are facing a divorce involving a privately held business, professional practice, or substantial ownership interest, call our Naperville divorce law lawyers at Keller Legal Services Group at 630-505-1515 to receive an initial consultation.
