Business Valuations in Illinois Divorce Cases

Business valuation is one of the most complex and contentious issues in Illinois divorce proceedings, particularly when one or both spouses own an interest in a closely held business. Illinois courts require trial judges to determine the fair market value of such business interests for equitable distribution under the Illinois Marriage and Dissolution of Marriage Act (IMDMA), 750 ILCS 5/503. This determination implicates nuanced accounting, financial, and legal principles.

Michael Roe was the trial lawyer for an important Illinois case (Marriage of Liszka) that discusses retained earnings in a closely held corporation. The Illinois Appellate Court’s decision in In re Marriage of Liszka, 2016 IL App (3d) 150238 is significant in shaping how trial courts assess business valuations and claims of dissipation of assets in divorce cases involving closely held businesses. 

The Legal Framework for Valuing Businesses in Divorce

Under 750 ILCS 5/503(d), marital property includes all property acquired during the marriage, except for property excluded under statute. Ownership interests in a business—whether through a corporation, partnership, or limited liability company—are often marital property subject to equitable division.

Illinois trial courts have broad discretion in valuing marital property but must employ a rational method supported by the evidence and consistent with sound accounting principles. As the Illinois Appellate Court emphasized in In re Marriage of Gunn, 233 Ill. App. 3d 165 (2d Dist. 1992), valuation “is a question of fact and will not be disturbed on appeal unless it is against the manifest weight of the evidence.”

Methods of Business Valuation in Illinois Divorce

Illinois courts commonly accept several methods of determining business value, including:

• Income approach – based on future anticipated earnings or cash flow.
• Market approach – comparing the business to similar companies sold under comparable conditions.
• Asset approach – based on the value of tangible and intangible assets minus liabilities.

In In re Marriage of Schlichting, 2022 IL App (2d) 210583, the appellate court reaffirmed that trial courts have discretion to choose a valuation methodology so long as it is grounded in credible expert testimony and evidence. The key requirement is that the court explain its reasoning and reflect evidence-supported findings.

The Role of Expert Testimony

Expert testimony plays a pivotal role in Illinois divorce cases involving business valuation. Courts often rely on valuation professionals—such as CPAs and business appraisers—to assist in determining fair market value. In In re Marriage of Preston, 241 Ill. App. 3d 479 (3d Dist. 1993), the court held that judges are entitled to choose between competing expert opinions, provided that their determination is supported by evidence.

More recently, In re Marriage of Hamilton, 2023 IL App (4th) 220942 illustrated how courts weigh expert valuations differently when one expert adjusts for excess officer compensation, retained earnings, or non-recurring income. The court emphasized that trials involving expert testimony require credibility assessments, economic context, and the purpose for which valuation is made.

Goodwill, Retained Earnings, and Personal vs. Enterprise Value

One recurring issue in valuation disputes is the treatment of goodwill. Illinois distinguishes between enterprise goodwill (which may enhance marital business value) and personal goodwill (which is typically excluded as a nonmarital asset). In In re Marriage of Talty, 166 Ill. 2d 232 (1995), the Illinois Supreme Court held that personal goodwill—value based on an individual’s reputation, skill, or relationships—cannot be transferred and therefore is not part of the marital estate.

Closely held businesses often accumulate retained earnings, which may raise questions about whether those funds constitute distributable marital property or merely a reflection of corporate ownership. In In re Marriage of Lundahl, 396 Ill. App. 3d 495 (2d Dist. 2009), the court examined this issue and held that retained earnings can be considered a marital asset if the controlling spouse has the ability to distribute them but chooses not to.

Additionally, cases such as In re Marriage of Koenig, 2012 IL App (2d) 110503 demonstrate that analytic clarity is necessary when determining whether retained corporate earnings represent dissipation or legitimate business reserves.

Dissipation of Business Assets

Illinois law prohibits a spouse from dissipating marital assets once a breakdown in the marriage has occurred. Dissipation refers to the use of marital funds or property for a non-marital purpose during or after the irretrievable breakdown. As recently reaffirmed in In re Marriage of Hamilton, 2023 IL App (4th) 220942, a spouse alleging dissipation must provide clear proof of the improper expenditure.

When one spouse controls a business, dissipation claims often focus on expenditures deemed excessive, self-serving, or unrelated to business purpose. Illinois appellate courts have held that failure to account for business funds, diverting corporate profits, or manipulating retained earnings can constitute dissipation, as seen in In re Marriage of Patel, 2013 IL App (1st) 112571.

Courts’ Discretion in Weighing Valuation Factors

Ultimately, the trial court’s valuation must reflect both the objective financial realities and the credibility of evidence presented. The court in In re Marriage of Foster, 2014 IL App (1st) 123078 noted that a fair valuation should consider historical financial data, economic context, market conditions, and the spouse’s degree of control.

The valuation date also matters. Illinois courts generally use the date of trial or another appropriate date under 750 ILCS 5/503(f), allowing judicial flexibility in volatile market conditions. Adjustments may be appropriate where the business value fluctuates significantly after separation.

Practical Considerations for Divorce Attorneys and Business Owners

Attorneys managing valuation issues should consider:

• Retaining qualified valuation experts early in the case.
• Obtaining all necessary financial records, tax returns, and shareholder agreements.
• Evaluating whether any portion of income or retained earnings represents personal goodwill or nonmarital property.
• Anticipating dissipation claims when business control is unilateral.

With experience in both finance and trial advocacy, practitioners can bridge the gap between accounting and litigation, ensuring their client’s position on valuation is supported by the record.

Conclusion

Business valuation in Illinois divorce cases requires a fusion of legal and financial analysis. Courts evaluate expert testimony, corporate structure, retained earnings, and goodwill to determine marital value. Understanding the prevailing appellate authority—such as Schlichting, Hamilton, and Lundahl—is essential for attorneys navigating these cases and for business owners seeking a fair outcome under Illinois law.