Business Evaluations and the issue of “Goodwill”

Many people run their own businesses and don’t think about what could happen to said business in the event of a divorce. For one thing, if the business is started during the marriage, using marital funds, absent a pre-marital agreement contemplating same, it is highly probable that the business will be deemed “marital” and subject to division. There are many different types of businesses that a person can own. Closely held businesses where the owner essentially is the business are run by what the Courts in Illinois have called “goodwill”. Goodwill, under Illinois law, refers to the ability of a person to run a company based upon their own personal reputation that they have built up. For example, a doctor, or an independent consultant, or someone who works with clients/patients one on one may have a lot of goodwill in their business. This essentially means that the clients or patients come to the business because of the person who is helping them. So, for example, let’s say Sally makes an appointment to meet with Dr. Mark, as her primary physician. Let’s say Dr. Mark divorces his wife, and his wife retains Dr. Mark’s medical practice. Sally makes appointments to see Dr. Mark specifically and doesn’t want to see Dr. Mark’s wife, in lieu of Dr. Mark. Sally only goes to Dr. Mark’s office because of Dr. Mark’s reputation. This is good will. Most courts in Illinois indicate that good will, in many scenarios, has no value. It can’t be transferred or sold between spouses, because if it were, it would have no value. No more patients would come to Dr. Mark’s practice if his wife were now the doctor there, most likely. This does not mean that the spouse in a marriage (where a marital business is operating by a lot of good will) won’t receive anything. The assets of the business still have a value, per case law on same. For example, at a Dr.’s office, the medical equipment, phones, computers, etc. all have a value that is subject to being divided in a divorce. Business valuations are very specific to each individual business. Our attorneys have handled many cases dealing with good will and business valuations. Feel free to set up a consultation with one of our attorney’s if this is a matter that pertains to your divorce and let our experience work for you.

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