Illinois Divorce Law...

Illinois Law - How is Goodwill Counted?

Goodwill arises when the business is worth more than the tangible assets. Things such as reputation, a desirable location, a unique product, and so on, can all-but-guarantee an earnings stream, and so make the business have more value than simply its tangible assets.

Business goodwill is recognized in Illinois.

Cases:

Head (1995) 210 Ill.Dec. 270, 273 Ill.App.3d 404, 652 N.E.2d 1246 (The court distinguished "professional" goodwill from "enterprise" goodwill. "Professional" goodwill refers to the husband's ability to make money in his medical practice. It derives from such things as the husband's training and reputation and the supply and demand in general for the husband's skills. "Enterprise" goodwill comes from such things as the location of the building, hospital affiliation, or an existing patient list. Enterprise goodwill derives from the value of the particular business, independent of the husband's particular skills. In real life, it is difficult enough to put a fair value on a medical practice. It is even more difficult to separate out how much of that value comes from "professional" goodwill and how much from "enterprise" goodwill. But you have to do it, because the two categories are treated differently. "Professional" goodwill is considered "earning power" and is always an input to the maintenance and property decision. "Enterprise" goodwill, if there is any, is an additional asset, which may be divided separately between the spouses as property. In this case, the lower court failed to get expert testimony on how much of the total business goodwill was "professional" goodwill and how much was "enterprise" goodwill.)

Trull (1993) 193 Ill.Dec. 219, 254 Ill.App.3d 34, 626 N.E.2d 252 (The lower court had double-counted the husband's equipment, inventory, and goodwill. The lower court had awarded the husband the equipment and inventory, and then separately awarded him the $45,000 value of the business. By awarding the same assets twice, the lower court had effectively short-changed the husband. Another issue was the goodwill attributable to the husband's ability to earn money. The appeals court said that the husband's ability to earn money was already factored in with respect to the maintenance award. And so, counting it again as part of the value of the business would result in assessing the husband twice for the same asset. The parties were married for 37 years. They had three adult children at the time of divorce.)

Thomas (1993) 181 Ill.Dec. 512, 239 Ill.App.3d 992, 608, N.E.2d 585 (In this case, the court awarded $174,000 (65%) of the marital estate, including the family business, to the wife and $95,000 (35%) to the husband. The husband had dissipated marital assets by causing the business, owned and operated by both parties, to become less profitable as their marital relationship disintegrated. The husband paid no attention to the quality of service, failed to solicit additional clients, and outright stole clients for his new business. The court found that the husband had dissipated 50% of the business, previously valued at $128,000. In awarding the family business solely to the wife, the court also took into account the desirability of awarding a small business to one party, where the parties have shown that they cannot work together. In apportioning the estate, the court considered the 26-year duration of the marriage, the fact that there were no maintenance or child support awards, and that the husband had sources of income other than the family business while the wife did not. The parties had three children, one of whom was still a minor at the time of the divorce proceedings.)

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