A business can be marital property without every component of the business’s value being a marital asset. When a closely held business is closely identified with one spouse, this distinction is particularly important. For example, Spouse A founded the company, established its reputation, and generated most of its revenue. Spouse A may credibly argue that without Spouse A, there is no business. However, Spouse B argues that the company has a recognizable name, employees, systems, equipment, customer records, contracts, and relationships that will stay after Spouse A leaves. Both spouses may be correct. A business can contain value attributable personally to the owner and also separate value that has become embedded in the actual enterprise. In Illinois, the law distinguishes between these two forms of value as personal goodwill and enterprise goodwill. Personal goodwill is mainly associated with the individual, whereas enterprise goodwill is mainly associated with the business or institution. Jay Fishman, Personal Goodwill Versus Enterprise Goodwill, in BVR’s Guide to Personal v. Enterprise Goodwill 24 (5th ed. 2012). This difference may materially affect the amount included in the marital estate. Enterprise goodwill may be included in the value of a marital business, but personal goodwill may not. The Illinois Supreme Court explained the distinction between personal and enterprise goodwill in In re Marriage of Talty, 166 Ill. 2d 232, 239-40 (1995). The case involved the valuation of an automobile dealership. Id. at 235. The court held that the concerns previously identified in the professional-practice context applied to the dealership’s goodwill, as well. Id. at 238-39. The dealership may contain a combination of personal goodwill and enterprise goodwill. Id. at 239. The court explained that “[t]o the extent that goodwill inheres in the business, existing independently of William’s personal efforts, and will outlast his involvement with the enterprise,” it should be treated as “an asset of the business, and hence of the marriage.” Id. at 240. However, goodwill that is “personal to William, depends on his efforts, and will cease when his involvement with the dealership ends” should not be considered property. Id. The court remanded the case for the trial court to decide whether the dealership’s goodwill consisted of personal goodwill, enterprise goodwill, or a mix of both. Id. at 239-40. David Wood observes in BVR’s Guide to Personal v. Enterprise Goodwill that Talty “opened up the argument in all types of businesses.” David Wood, Goodwill: Where Are […]
