Dividing an accounting firm in an Illinois divorce begins with a difficult question: What is the firm actually worth, and how much of that value belongs to the business rather than the individual accountant? An accounting firm may not own substantial physical assets, but it may still generate substantial income. Often, its value lies in professional reputation, experienced employees, recurring client relationships, and the ability to continue providing services after an owner leaves. Financial Valuation: Applications and Models, 5th ed., ch. 21. When an accountant divorces in Illinois, the court must identify more than how much revenue the firm generates or what the accountant earns. It must also identify the ownership interest, determine whether it is marital property, and establish its fair market value. Under Section 503(k) of the Illinois Marriage and Dissolution of Marriage Act, the court must employ a fair market value standard. The valuation date is the date of trial unless the parties agree to another date or the court orders otherwise. 750 ILCS 5/503(k). What Exactly Is Being Valued In An Accounting Firm? An accounting firm may operate as a sole proprietorship, partnership, professional corporation, or limited liability company. The accountant may own the whole practice or hold merely a minority interest in a larger firm. Accordingly, the valuation must start by establishing the actual ownership interest and the rights associated with it. Imagine an accountant who owns 25% of a CPA firm. That does not necessarily mean that the accountant owns 25% of every asset held by the business. The accountant’s economic interest may be governed by an operating agreement or by a partnership that establishes profit distributions, capital contributions, withdrawal rights, and retirement payments. This distinction is particularly important in situations where partners share overhead but maintain separate clients and revenue, instead of operating as an integrated firm. What It’s Worth: Accounting Firm Value at 11. It is the appraiser’s job to examine the firm’s ownership percentages, organizational documents, compensation arrangements, capital accounts, and agreements that govern withdrawal or redemption. Id. at 20-21. Illinois CPA Licensing And Ownership Restrictions Can Affect Value Accounting firms are subject to professional licensing requirements; these requirements can restrict who can own and operate them. Section 14.4 of the Illinois Public Accounting Act requires that “[a] majority of the ownership of the firm, in terms of financial interests and voting rights” belong to individuals licensed or registered in some […]
