Insurance agencies have owners. Those owners get divorced. The insurance agency is an asset whose value must be divided in an insurance agency owner’s divorce. This article explores how to value insurance agencies as part of the Illinois divorce process. An Insurance Agency Appraisal Must Begin With Defining What Is Being Valued The question of what an insurance agency is worth cannot be determined by simply multiplying the agency’s annual commissions by an industry multiple. Insurance agencies may represent several insurance carriers, employ multiple producers, generate recurring commissions from thousands of policies, and possess a valuable book of business. The economic value of those features depends on what the agency truly owns and what could continue or be transferred after a change in ownership. Insurance agencies act as the “sales arm” of the insurance industry. Business Valuation Resources, What It’s Worth: Valuing Insurance Agencies 9 (2021). Captive agents are affiliated with a single carrier, independent agents can represent several carriers, and brokers typically represent customers while working with multiple carriers. Id. These distinctions can have a major impact on value. An independent agency may own valuable rights associated with its customer accounts and be able to transfer its book of business to a purchaser. However, another agency may depend almost completely upon a contract with one carrier that limits the owner’s ability to transfer the agency, keep customers, or receive renewal commissions after termination. Under Illinois law, there is an additional requirement. The Illinois Marriage and Dissolution of Marriage Act states that “the court shall employ a fair market value standard.” 750 ILCS 5/503(k). The valuation date is the date of trial, unless the parties agree to another date or the court chooses another date within its discretion. Id. Before selecting an income, market, or asset approach, an insurance-agency appraisal should identify the legal entity or entities being valued, the spouse’s percentage and class of ownership, whether the agency is independent, captive, or operates as a brokerage, the kinds of insurance sold, the agency’s carrier relationships, and the ownership and transferability of its book of business. Additionally, the appraisal should identify the rights attached to the owner’s interest, the assets and liabilities included in the valuation, and the applicable valuation date. These distinctions particularly matter in an Illinois divorce because Section 503(k) requires the court to determine fair market value as of the date of trial or another date agreed […]
