When Courts Must Value Family Business "Goodwill" in a Divorce

 Posted on September 22, 2025 in Divorce

Illinois divorces involving family businesses are among the most complex types of divorces. Unlike splitting the marital home or divvying up the household furniture, a family business typically has both tangible and intangible assets. Intangible assets can include customer loyalty, professional relationships, and reputation, among others. These are assets that can significantly affect the value of a business, even though they are not tangible.

Illinois family courts must determine how a business’s goodwill is valued, and whether it is marital property (750 ILCS 5/503) to be divided, or is too closely tied to an individual spouse’s personal skills to be split. It is important to understand how Illinois law treats goodwill in a family business during a divorce. An experienced St. Charles, IL family law attorney can help you determine whether your business’s goodwill must be treated as a marital asset, and, if so, how it will be split.

What is "Goodwill" in a Family Business?

Goodwill is the intangible value of a business that extends beyond the physical assets but contributes significantly to future earnings. The Illinois Supreme Court defined goodwill as "the value of a business or practice that exceeds the combined value of the physical assets." Some of the factors that contribute to the goodwill of a business include:

• A positive reputation in the community and among customers
• A strong customer base that consistently brings its business to the company and is loyal to the company.
• A favorable location that attracts more customers
• The personal relationships between the business and its patrons or clients.
• A skilled workforce that brings valuable experience and expertise to the company.
• A strong identity and recognition in the market (i.e., branding and name recognition).

How Are Enterprise Goodwill and Personal Goodwill Split During a Divorce?

Enterprise goodwill, which is closely tied to the business, is more likely to be considered a marital asset and divided during a divorce. Personal goodwill is typically considered a separate, non-marital asset and is excluded from the division of assets in a divorce. Qualified professionals will use various methods, including the "Top-Down Method" or the "Multi-Attribute Utility Model," to separate the two types of goodwill.

The final decision will depend on the specific business, the degree of the owner’s involvement, and the jurisdiction. Enterprise goodwill can continue to generate profits for the business even if the current owner leaves, because it is tied to the reputation, customer base, location, and other factors that can be transferred to a new owner. Personal goodwill is tied to the owner’s unique skills, reputation, and relationships.

A professional business valuator should be hired to distinguish between enterprise goodwill and personal goodwill. If the top-down method is used, the total enterprise is valued, tangible assets are subtracted, and then a specific model is used to separate enterprise goodwill from personal goodwill. If the Multi-Attribute Utility Model is used, specific attributes are weighed to determine the proportion of goodwill that belongs to the enterprise and to the individual.

If no agreement on value can be reached, the expert’s findings are presented to the court, which will then decide on the allocation of the goodwill between spouses. Some industries rely more heavily on personal connections and the owner’s daily involvement, while others can be transferred to another person and continue to succeed without the current owner. The business-owning spouse will likely argue that much of the goodwill is personal and not divisible. In contrast, the non-business-owning spouse will emphasize the enterprise's goodwill, which has real, transferable value.

Contact a Kane County, IL Family Lawyer

If you are struggling with how to value goodwill in a family-owned business, an experienced St. Charles, IL divorce lawyer from Mirabella, Kincaid, Frederick & Mirabella, LLC can help. How the court treats business goodwill can potentially make a difference of tens of thousands, or even hundreds of thousands of dollars in the final settlement, so this complicated issue should never be left to chance.

We are experienced and knowledgeable family lawyers; MKFM Law serves family law clients from our offices in Kane County, DuPage County, and DeKalb County. Call 630-665-7300 to schedule your initial attorney meeting to discuss your family law issues.