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 state. It also requires all owners to be active participants in the CPA firm or its affiliated entities. Certain Illinois-based owners responsible for regulated accountancy activities must hold an Illinois CPA license as well. 225 ILCS 450/14.4(1)-(2).
Section 13(b) requires qualifying CPA firms to “hold a license as a CPA firm issued under this Act,” which includes firms with Illinois offices using the CPA title or performing the regulated assurance activities identified in Section 8.05(a)(1). 225 ILCS 450/13(b).
What does this mean for valuing an accounting firm in a divorce? An unlicensed spouse cannot assume that an accounting-firm interest can be transferred without regard to professional licensing requirements. Likewise, an appraiser cannot assume that every hypothetical purchaser is legally eligible to acquire and operate the practice in its existing form.
However, not every accounting business is subject to the same restrictions. Section 8.05(b)(3) provides that certain activities, such as bookkeeping, tax preparation, and consulting, “are not restricted to licensed or registered CPAs,” subject to Section 9. 225 ILCS 450/8.05(b)(3). An appraiser must identify the firm’s legal structure, the services performed, and any restrictions on transferring the particular ownership interest.
These limitations can affect the available market for the firm and the practical method of dividing its marital value. Yet, they do not solely determine whether the ownership interest constitutes marital property.
Is An Accounting Firm Marital Or Nonmarital Property In Illinois?
Under Section 503(a) of the Illinois Marriage and Dissolution of Marriage Act, marital property is property “acquired by either spouse subsequent to the marriage,” but the exceptions include “property acquired by gift, legacy or descent” and “property acquired before the marriage.” 750 ILCS 5/503(a)(1), (6).
So, an accounting practice established during the marriage will typically be marital property. An ownership interest acquired before the marriage may remain nonmarital, even if the firm grows substantially during the marriage.
Section 503(a)(7) establishes that “the increase in value of non-marital property” is nonmarital, even when the appreciation results from a spouse’s personal efforts, subject to the statute’s reimbursement provisions. 750 ILCS 5/503(a)(7).
A premarital accounting practice does not automatically eliminate the marital estate’s potential claim. A spouse’s personal efforts may entitle the marital estate to reimbursement “if the efforts are significant and result in substantial appreciation” to the nonmarital property; however, no reimbursement is available if the marital estate “reasonably has been compensated” for those efforts. 750 ILCS 5/503(c)(2)(B).
In In re Marriage of Werries, the husband held a nonmarital farm partnership interest that appreciated substantially during the marriage. 247 Ill. App. 3d 639, 643-44 (1993). Marital earnings had been used to repay part of the loan financing his original interest, but the wife failed to establish the amount that was contributed. Id. at 644. Accordingly, the appellate court held that “the absence of clear and convincing evidence of traceable contributions” precluded reimbursement. Id. at 648. The court further found that the husband’s personal efforts were minimal since the marriage and that he had been reasonably compensated for the efforts. Id. at 648-49
In terms of an accounting firm, the analysis may involve determining whether marital funds financed an ownership buy-in, whether earnings were retained in the business, and whether the accountant received reasonable compensation for the work that contributed to the firm’s appreciation.
In sum, significant growth, by itself, does not automatically transform a premarital practice into marital property.
What Factors Drive The Value Of An Accounting Firm?
Accounting firms are different from businesses whose value is concentrated in equipment or inventory. Instead, accounting firms typically derive substantial value from intangible assets and their ability to generate continuing revenue.
Business Valuation Resources points to location, firm size, gross revenue, profitability, client mix, and transaction terms as essential considerations. What It’s Worth: Accounting Firm Value at7-9. However, the value attached to these characteristics depends on the practice.
Recurring Revenue And Client Retention
One accounting firm may prepare tax returns for hundreds of returning clients. Another firm may depend mostly on occasional consulting engagements. These two firms likely have different economic profiles.
Recurring bookkeeping, tax preparation, and payroll can make future revenue more predictable. By contrast, specialized consulting projects can generate substantial fees without creating an equivalent recurring revenue stream.
Buyers examine client mix and the predictability of recurring income; yet, even recurring clients are not guaranteed to stay. See id. at 8. An appraiser should therefore evaluate service offerings, client concentration, historical retention rates, and the likelihood that clients will keep using the firm following a change in ownership.
A practice dependent on one major client or the personal relationships of one accountant may come across greater revenue risk than one with a diversified client base and stable institutional relationships.
Staffing And Operational Capacity
The firm’s employees also impact its ability to generate revenue.
Experienced accountants, supervisors, and support personnel help a practice serve clients without relying solely on the owner. On the other hand, employee turnover or inadequate staffing may threaten client relationships and reduce profitability.
Staff tenure, utilization, compensation, and the firm’s ability to collect billed fees are all valuation considerations. Id. at 10-12.
The appraiser should evaluate whether the firm’s historical earnings can continue with its existing workforce and whether additional compensation or hiring will be necessary to keep up operations.
Succession Planning
Succession planning particularly matters when an accounting firm primarily depends on an owner who is approaching retirement or plans to leave the practice.
A formal transition process can help preserve client relationships because it can introduce successor accountants and establish continuity of service.
The Illinois CPA Society reported in 2025 that “only 41% of accounting firms have a formal succession plan in place,” which demonstrates the challenges of ensuring continuity when an owner retires or leaves the practice. Mary Delaney, Succession Planning Strategies Every Firm Leader Should Consider, Illinois CPA Society (2025).
For valuation purposes, the important questions are whether there are qualified successors, whether clients have relationships with other professionals, and whether the firm can keep its earnings after the departing accountant leaves.
An established succession plan may help the firm preserve value independently of its owner. Without one, an appraiser may be required to account for the financial risks associated with the owner’s departure. Overall, these factors inform the valuation methods used to determine what the accounting firm is worth.
Why Is An Accounting Firm Not Automatically Worth One Year’s Revenue?
Accounting practices are often priced using a multiple of annual gross revenue. Kevin Yeanoplos explains in What It’s Worth: Accounting Firm Value that the rule of thumb has “historically been around 1.0 times annual gross revenues,” although actual multiples vary according to the practice’s characteristics. 17.
BVR’s analysis of 172 accounting-firm transactions occurring between January 1990 and June 2015 reported a median selling-price-to-revenue multiple of 1.0. Id. at 53-54. To be clear, these figures provide historical context, not a current valuation of a specific Illinois practice.
Consider Yeanoplos’s example of two accounting firms. Each generated $500,000 in annual revenue; one had three partners, higher overhead, and $50,000 in net profit, whereas the other had two partners, lower overhead, and $150,000 in net profit. Id. at 18. Applying the same revenue multiple would overlook their different profitability.
Transaction terms are also important. BVR explains that “[t]erms of a sale can sometimes be as important as value.” Id. at 8.
A purchaser might pay cash at closing or the purchaser might agree to payments contingent on actual collections and client retention. Id. Thus, a quoted purchase price does not necessarily represent the amount the seller will ultimately receive.
Yeanoplos cautions that a revenue-based rule of thumb is best used as “a reality check.” Id. at 19. In an Illinois divorce, an appraiser must determine the firm’s fair market value rather than automatically multiply its revenue by an industry benchmark. 750 ILCS 5/503(k).
How Should An Accounting Firm’s Financial Statements Be Adjusted?
An accounting firm’s reported net income may not accurately represent the earnings available to a potential purchaser.
Business owners may maintain excess working capital, receive compensation above or below market rates, or pay personal expenses through the practice. BVR identifies inappropriate compensation adjustments, cash-basis reporting, and failure to consider excess working capital as typical valuation errors. What It’s Worth: Accounting Firm Value at 23-24.
A valuation analyst may normalize the financial statements by evaluating owner-related expenditures, compensation, nonrecurring expenses, and nonoperating assets. The point is to identify the economic benefits that the practice can reasonably be expected to generate.
Additionally, accounting practices frequently report on a cash basis. Cash-basis statements may omit assets like receivables and prepaid expenses, along with liabilities like unpaid bills and accrued wages. Financial Valuation: Applications and Models, 5th ed., ch. 21, “Financial Statement Adjustments.”
Yet converting every cash-basis statement to accrual accounting is not automatically necessary. Rather, the proper adjustments depend on the valuation method and the economic benefits being measured. Id.
How Does Reasonable Compensation Affect An Accounting Firm’s Value?
An accounting partner may receive income for providing professional services and also as a return on ownership. Appraisers are “not appraising the value of the partners’ compensation for their time.” What It’s Worth: Accounting Firm Value at 11.
It is important to see the distinction between these sources. BVR warns that accounting-partner compensation studies may include “commingled profits,” meaning returns attributable to ownership rather than payment for services. Id. at 24.
An appraiser who treats every dollar paid to a partner as an operating expense can understate the firm’s earnings. However, adding back all partner compensation without accounting for the cost of replacing the partner’s work can overstate its value.
Compensation analysis must distinguish “services provided” from “earnings derived from ownership.” Financial Valuation: Applications and Models, 5th ed., ch. 22, “Assessing Compensation.”
A partner who prepares tax returns, supervises employees, manages operations, and attracts clients may perform multiple jobs requiring different levels of compensation. Id.
The appraiser should also consider productivity. An owner who seems to earn twice the compensation of a comparable professional may just be working twice as many hours. What It’s Worth: Accounting Firm Value at 24.
Finally, reasonable compensation impacts the valuation of goodwill. In fact, “understatement of reasonable compensation will result in overstatement of enterprise goodwill.” Id. at 40. An accurate adjustment will help distinguish the value attributable to the accounting firm from the accountant’s personal earning capacity.
Are Accounts Receivable And Unbilled Work Included In An Accounting Firm’s Value?
Sometimes, an accounting firm completed substantial work before the divorce valuation date but did not collect payment yet.
Accounts receivable represent amounts billed for services already performed. Unbilled work in progress represents work performed but not yet invoiced.
These amounts can be quite important for an accounting practice that uses cash-basis accounting. Although they have economic value, receivables may be absent from cash-basis balance sheets. Financial Valuation: Applications and Models, 5th ed., ch. 21, “Accounts Receivable.”
The Illinois Supreme Court addressed the treatment of accounts receivable in In re Marriage of Schneider, 214 Ill. 2d 152 (2005). In that case, the husband argued that including his dental practice’s receivables in its value would result in double counting since those receivables would eventually be collected as income used to pay child support. Id. at 168-69.
The court rejected this argument and held that accounts receivable are assets that “have been earned and have a known value” and are therefore distinguishable from future earnings or income-generating ability. Id. at 170. It further explained that “[t]he fact that the accounts receivable may not be collected until a future date does not transform those assets into speculative or future income.” Id. at 170.
However, for an accounting firm, the gross receivable balance does not necessarily equal its realizable value. An appraiser must examine historical collections, the age of outstanding invoices, write-offs, and the likelihood of collecting each category of receivables. Financial Valuation: Applications and Models, 5th ed., ch. 21, “Accounts Receivable.”
Unbilled work in progress must have a similar investigation. A recommended way to do so is by examining subsequent billings, billing frequency, and historical write-offs to estimate the value of work performed as of an earlier valuation date. Id., “Inventory.”
The appraiser needs to avoid counting these amounts twice. If the valuation includes the anticipated collection of existing receivables within working capital or projected cash flow, separately adding their entire value might duplicate the same economic benefit.
Which Valuation Methods Are Used For Accounting Firms?
Accounting firms can be valued using the asset, income, or market approach. Id., 5th ed., ch. 21, “Valuation Methods.”
The asset approach determines a firm’s net asset value by valuing its individual assets and liabilities. However, be aware that intangible assets may “account for the majority of the value of the practice.” Id., 5th ed., ch. 21, “Asset Approach.”
This approach is sometimes appropriate for a marginally profitable accounting firm, but as BVR explains, even such a practice may possess “going concern value” through its trained workforce, established client base, and other intangible assets. What It’s Worth: Accounting Firm Value at 18.
The income approach determines value by “converting anticipated future economic benefits” into present value using a discount or capitalization rate. Financial Valuation: Applications and Models, 5th ed., ch. 21, “Income Approach.”
The appraiser must determine normalized future earnings or cash flow, account for reasonable owner compensation, and assess expected growth and business-specific risk. Id.
The market approach examines sales of comparable professional practices and prior transactions involving the subject firm. Id., “Market Approach.” However, information about transaction terms and the characteristics of comparable practices may be “too incomplete to provide a basis for calculating a value indication.” Id. So, the appraiser must assess the comparability and reliability of the available transactions.
Ultimately, the goal is to choose a methodology that reflects the particular accounting firm’s financial performance, ownership characteristics, and economic benefits without improperly including the accountant’s personal earning capacity.
How Do Partnership Agreements And Buy-Sell Provisions Affect An Accounting Firm’s Value?
An accountant’s ownership interest may be governed by a partnership agreement, shareholder agreement, or LLC operating agreement. These agreements can determine how profits are distributed, whether an interest can be transferred, and what happens when an owner retires, withdraws, or divorces.
Hitchner discusses how buy-sell agreements not only establish the owners’ rights and obligations but also establish any transfer restriction to outsiders. Financial Valuation: Applications and Models, 5th ed., ch. 31, “Overview of Buy-Sell Agreements.”
Some agreements explicitly identify divorce as an event that can trigger a required or optional purchase of an owner’s interest. Id., “Triggering Events.”
For instance, an accounting firm’s agreement might require the remaining partners to purchase a departing accountant’s interest at a predetermined price. Instead, it may calculate the price using the partner’s capital account, a revenue multiple, or even an independent appraisal.
The agreement can determine whether the purchase price is paid immediately or in installments. It is important to identify the payment period, interest rate, and amount payable at closing. Id., “Payment Terms.”
Although these provisions affect the economic rights associated with the accountant’s ownership interest, a contractual buyout price does not necessarily establish the interest’s fair market value for an Illinois divorce.
Does An Illinois Court Have To Use The Buy-Sell Agreement’s Price?
In In re Marriage of Gunn, the husband argued that his law-firm shares should be valued under the firm’s buy-sell agreement, which his expert calculated at around $3,050 per share, rather than the trial court’s valuation of $5,000 per share. 233 Ill. App. 3d 165, 180 (1992).
The appellate court responded by explaining that a trial court is “not, however, required to use such an agreement” when valuing marital property and that a buy-sell agreement is “not necessarily an indication of fair market value.” Id. at 182-83.
In fact, a prior transaction outside the agreement involved shares sold for $10,094.01 each, which included a proportionate amount of deferred compensation. Id. at 183. The appellate court affirmed the trial court’s $5,000-per-share valuation. Id. at 184.
Regarding an accounting firm, the appraiser needs to review the agreement’s valuation formula, the events that trigger a buyout, and any transactions that involve ownership interests. The distinction is especially important if the agreement actually addresses divorce, rather than only retirement or withdrawal. Overall, the agreement’s price is relevant; yet, it does not automatically replace the court’s determination of fair market value. Id. at 182-84; 750 ILCS 5/503(k).
Is An Accounting Firm’s Goodwill Marital Property In Illinois?
An accounting firm’s value may substantially exceed the value of its equipment, cash, and receivables. This difference may reflect intangible assets, which may include goodwill.
Goodwill is an intangible asset associated with future economic benefits that cannot be either individually identified or separately recognized. Financial Valuation: Applications and Models, 5th ed., ch. 19, “Goodwill.”
Goodwill for an accounting firm may come from its reputation, established name, continuing client relationships, or the belief that clients will stay with the practice.
Illinois, however, distinguishes goodwill belonging to the individual accountant from goodwill belonging to the firm.
Personal Goodwill Versus Enterprise Goodwill
Personal goodwill comes from an accountant’s personal reputation, abilities, and relationships. Enterprise goodwill is attributable to the business itself and may remain after the accountant’s involvement ends.
In In re Marriage of Talty, the Illinois Supreme Court held that goodwill existing independently of an owner’s personal efforts and that “will outlast his involvement with the enterprise” should be considered an asset of the business and marriage. 166 Ill. 2d 232, 239-40 (1995).
However, goodwill that “depends on his efforts, and will cease” when the owner’s involvement ends should not be considered property. Id. at 240.
Talty involved a car dealership, not an accounting practice. Later on, though, the Illinois Supreme Court subsequently reaffirmed the distinction in Schneider, holding that personal goodwill should be excluded from the valuation of a dental practice while recognizing that the prohibition against double counting does not extend to enterprise goodwill. 214 Ill. 2d 152, 166-68 (2005).
Imagine two accounting practices.
One revolves around one CPA whose clients will only work with that CPA. If that CPA leaves, many clients will likely follow. This dependence suggests that some of the practice’s goodwill is personal.
The other operates under an established firm name that employs several accountants with their own client relationships. This firm maintains clients when partners retire. These characteristics likely support the existence of enterprise goodwill.
An established client list or recognizable business name does not automatically establish how much goodwill belongs to the enterprise. The distinction requires evidence.
Why Doesn’t Illinois Divide Personal Goodwill?
In In re Marriage of Zells, the Illinois Supreme Court held that professional goodwill was not a divisible marital asset, reasoning that “[g]oodwill represents merely the ability to acquire future income.” 143 Ill. 2d 251, 254 (1991).
The court stated that professional goodwill is already considered as an aspect of income potential under the Dissolution Act and that “[a]ny additional consideration of goodwill value is duplicative and improper.” Id. at 256.
Talty later clarified that this concern applies to personal goodwill, not goodwill that is independent of the owner and survives the owner’s departure. 166 Ill. 2d at 239-40.
The Supreme Court reaffirmed this distinction in Schneider, explaining that the duplication concern “is limited to personal goodwill and does not extend to enterprise goodwill.” 214 Ill. 2d at 168.
Personal goodwill is even excluded when maintenance or child support is not awarded. Id. at 166-67. Personal goodwill is considered through the statutory factors that govern property division, independently of whether support is awarded. Id.
So, an accountant’s personal earning capacity cannot merely be converted into a divisible business asset. However, enterprise goodwill must be distinguished from that earning capacity when determining the firm’s marital value. Id. at 167-68.
How Can An Appraiser Distinguish Personal And Enterprise Goodwill?
Separating personal and enterprise goodwill is harder than identifying the firm’s overall intangible value.
There is no universally accepted way of allocating goodwill between its personal and enterprise components. Financial Valuation: Applications and Models, 5th ed., ch. 19, “Allocation of Goodwill as Personal or Enterprise.”
For an accounting firm, the appraiser should figure out whether clients seek out a specific CPA or the firm generally. The appraiser should also determine whether other accountants have meaningful client relationships and whether the practice has maintained clients following previous partner departures. Id., “Applying the Factors to Assess Goodwill.”
Actual evidence of client transfers may be especially helpful. A firm that keeps clients when an owner retires may possess goodwill that survives independently of that owner’s personal involvement.
Can An Appraiser Assign Percentages To Each Type Of Goodwill?
In In re Marriage of Alexander, an expert used a multiattribute utility model to distinguish personal and enterprise goodwill in a medical practice. 368 Ill. App. 3d 192, 195 (2006). The expert evaluated personal attributes, which included specialized knowledge and reputation, with enterprise attributes, which included multiple service providers, business location, staffing, and established systems. Id. at 199.
The expert estimated that 70% of the practice’s goodwill was enterprise goodwill; however, the trial court rejected his proposed total goodwill value, adopted a two-thirds allocation, and valued enterprise goodwill at $160,000. Id. at 195, 200-01.
The case demonstrates that an expert can use business-specific characteristics to support an allocation between personal and enterprise goodwill, but the resulting percentages are still not binding on the court. See id.
Thus, the appraiser should identify which characteristics generate the accounting firm’s earnings, decide whether those characteristics will survive the owner’s departure, and explain how the evidence supports the proposed allocation.
Can An Accounting Firm’s Clients And Goodwill Be Transferred?
An accounting firm may be sold. That does not guarantee the firm’s clients will remain with the buyer after the sale. The clients’ willingness to work with a successor, the seller’s cooperation, and confidentiality obligations can all impact how much value truly transfers.
Accounting practices derive value mainly from “professional relationships with clients and repeat business.” Financial Valuation: Applications and Models, 5th ed., ch. 21, “Accounting Practices.”
A departing accountant can introduce clients to a successor, assist during a transition, or work alongside the buyer for some time to establish continuity. In other words, a selling professional can “transfer some client trust” through introductions and a carefully planned transition. Id., “Professional Goodwill and Practice Goodwill.”
Consider an accountant who has prepared a family’s tax returns for 40 years. In that case, the family may trust that specific accountant, not the firm generally. A buyer who receives the client’s files but never meets the family may have issues maintaining the engagement. If the selling accountant introduces the successor and helps create a relationship, the probability of retaining that client can improve.
Transferring client files involves additional obligations, though. The AICPA’s Confidential Client Information Rule states that a member in public practice “shall not disclose any confidential client information without the specific consent of the client,” subject to specified exceptions. AICPA Code of Professional Conduct § 1.700.001.
When a member transfers or sells a practice and retains no ownership, the AICPA directs the member to request each impacted client’s consent in writing before transferring the files. The member is advised to notify the client that consent may be presumed after at least 90 days without a response, unless applicable law prohibits that procedure. Id. § 1.400.205.
Additionally, confidentiality is essential before a sale occurs. A prospective buyer’s review of a practice might expose confidential client information. The AICPA therefore requires appropriate precautions, like a written confidentiality agreement, to prevent the buyer from improperly disclosing information obtained during due diligence. Id. § 1.700.050.
Tax-preparation practices have additional restrictions under 26 U.S.C. § 7216. Treasury regulations permit the transfer of certain taxpayer lists in connection with selling a tax-preparation business. Yet, the permitted list is limited to specified information, and pre-sale due diligence must occur under a written agreement restricting disclosure and use of the information. 26 C.F.R. § 301.7216-2(n)(1). Importantly, the exception should not be mistaken for blanket permission to disclose all taxpayer information.
These requirements matter. The ability to sell a practice is not the same as the ability to transfer every client relationship or record without restriction. An appraiser must evaluate whether the firm’s expected earnings may reasonably continue after a change in ownership.
Client relationships can support value. Still, a client list alone does not guarantee continued revenue.
How Do Noncompete Agreements Affect Transferable Value?
A buyer may require the selling accountant to agree not to establish a competing practice or solicit the clients being transferred. Without this protection, a buyer could pay for an established practice only to find that the former owner has opened another office and many of the clients followed. A covenant not to compete can protect the acquired business by restricting the seller’s competitive conduct after the sale. What It’s Worth: Accounting Firm Value at 42.
Illinois’s Freedom to Work Act excludes from its definition of an employment covenant not to compete an agreement entered into by a person “purchasing or selling the goodwill of a business or otherwise acquiring or disposing of an ownership interest.” 820 ILCS 90/5.
This exclusion is important, but it does not mean that every restriction accompanying a business sale is automatically enforceable. Thus, an appraiser must distinguish the economic value of a proposed covenant from the legal question of whether its particular terms can even be enforced.
For valuation purposes, BVR describes a “with and without” analysis; the appraiser estimates the firm’s value assuming the seller complies with the covenant and compares it with the value of the firm if the seller competes. Id. at 42-43. For example, the appraiser might estimate how many clients could leave if the selling accountant opened a competing practice, how much revenue those departures would eliminate, and how the resulting loss of earnings would affect the buyer. A covenant’s economic value will depend on the specific circumstances.
The appraiser should not automatically classify all value protected by a noncompete agreement as enterprise goodwill. Because Illinois excludes personal goodwill from the marital estate, the economic effect of the covenant must be analyzed consistently with the distinction between personal and enterprise goodwill. See Talty, 166 Ill. 2d at 239-40.
How Do Earnouts And Client-Retention Payments Affect Value?
A buyer may structure an accounting practice’s purchase price around the revenue retained after a sale instead of paying the whole amount upfront. BVR lays out four pricing arrangements: collection pricing, look-back pricing, cash pricing, and fixed seller-financed pricing. What It’s Worth: Accounting Firm Value at 47-48.
Under collection pricing, the seller receives payments based on what the buyer collects over an agreed period. The down payment, payment percentage, and payment period can vary. Id. at 47. Consider a seller who receives an initial payment followed by a percentage of collections from former clients over a few years. If clients leave, the seller might receive less than the advertised purchase price. BVR cautions that even when a practice is described as selling for a certain revenue multiple, the seller may not receive that amount “because of the terms of the agreement.” Id.
Under look-back pricing, an initial purchase price is adjusted based on subsequent billings or collections. By contrast, cash pricing generally provides nearly all or all of the purchase price at closing, while fixed seller-financed pricing spreads a predetermined price over time without tying payments to client retention. Id. at 47-48.
When evaluating comparable sales, these are important distinctions to know about. Two practices may report identical purchase-price multiples, even though one seller receives guaranteed cash and another accepts payments contingent on future collections. An appraiser must examine actual transaction terms and not rely only on the reported purchase price.
How Do Private Equity And Alternative Practice Structures Affect Value?
Private equity investment has created additional ownership arrangements into the accounting industry. The AICPA discusses alternative practice structures where a CPA firm’s attest practice is separated from its tax, consulting, and other nonattest services. Outside investors may acquire an interest in the nonattest entity, whereas the attest firm stays subject to professional ownership and independence requirements. AICPA, Alternative Practice Structures.
The Illinois CPA Society also explains that these arrangements may involve a CPA-owned attest entity and a separately owned nonattest entity connected through an administrative services agreement. Elizabeth Pittelkow Kittner, The Ethics of Alternative Practice Structures in the Accounting Profession, Illinois CPA Society (Summer 2025).
In an Illinois divorce, the appraiser must identify which entity or ownership interest the accountant truly owns. The accountant may hold equity in the attest firm, the nonattest entity, or both, as well as rights to distributions, deferred payments, or future transaction proceeds.
The appraiser must evaluate each entity’s ownership agreements and financial arrangements. An acquisition price paid for a whole accounting enterprise does not necessarily establish the value of a minority interest in its separately organized attest practice.
What Financial Records Are Needed To Value An Accounting Firm?
A reliable valuation needs records that establish the firm’s financial performance, ownership rights, and ability to retain clients. In What It’s Worth: Accounting Firm Value, Robert F. Reilly and Robert P. Schweihs provide a “Document Request Checklist for Valuing an Accounting Practice.” at 20-22. This checklist recommends gaining five years of financial statements and tax returns, when available, along with current interim statements and financial information organized by service line. Id. at 20.
Additionally, the appraiser should gather aged accounts receivable and payable, loan documents, employment and noncompete agreements, unbilled work in progress, and records establishing every partner’s ownership interest. Id. at 21.
Owner compensation records are especially important. BVR recommends a five-year schedule that identifies salaries, bonuses, benefits, investment returns, profit distributions, and personal expenses. Id.
Lastly, the checklist calls for client-level fee information categorized by service type, including accounting, tax, audit, advisory, and specialized consulting services. Id. at 22.
These records allow the appraiser to test reported earnings, evaluate client concentration, assess compensation, and decide the economic rights associated with the accountant’s interest. Since they could contain confidential client information, their disclosure and review needs to comply with applicable confidentiality obligations.
How Can An Accounting Firm Be Divided In An Illinois Divorce?
Once the accounting firm’s marital value has been determined, the court must decide how to allocate that value between the spouses. Dividing the firm’s value does not necessarily mean dividing its ownership.
Section 503(d) of the Illinois Marriage and Dissolution of Marriage Act instructs courts to “divide the marital property without regard to marital misconduct in just proportions.” 750 ILCS 5/503(d).
The court considers each spouse’s contributions to the marital estate, the value of the property assigned to each spouse, their economic circumstances, and their opportunities to acquire future income and assets. 750 ILCS 5/503(d)(1), (3), (5), (11).
An equitable division therefore does not necessarily require each spouse to receive half of the accounting firm’s value. The firm must be considered alongside the parties’ other marital property, debts, and overall financial circumstances. Further, the court must distinguish the accountant’s true ownership interest from the value of the entire practice.
Can The Accountant Keep The Firm?
One approach is to award the ownership interest to the accountant and compensate the other spouse with different marital assets or an equalization payment.
For instance, imagine an accountant keeps the firm while the other spouse receives a larger share of available cash, investments, or retirement assets. Then imagine that those assets are insufficient, so the accountant may be required to make a payment to compensate the other spouse for the value awarded.
This arrangement can preserve the firm’s operations without requiring the former spouses to become business partners. It can also avoid disrupting relationships with existing partners, employees, and clients.
Retaining ownership can be important for a CPA firm, as professional licensing requirements may restrict transfers. Section 14.4 of the Illinois Public Accounting Act requires a majority of a licensed CPA firm’s financial interests and voting rights to belong to individuals licensed or registered in some state; it also states that “[a]ll owners of the CPA firm, whether licensed as a licensed CPA or not, shall be active participants in the CPA firm or its affiliated entities.” 225 ILCS 450/14.4(1)-(2).
Although non-CPAs are not categorically prohibited from holding ownership interests, transferring an interest to a nonaccountant spouse must comply with applicable licensing requirements and the firm’s governing agreements.
Awarding the practice to the accountant may therefore provide a practical means of preserving its operations while recognizing the nonowner spouse’s interest in the marital estate.
What If There Are Not Enough Assets To Offset The Firm’s Value?
Sometimes the accounting firm is one of the largest assets in the marital estate, which leaves insufficient cash or other property to compensate the nonowner spouse immediately.
In that case, installment payments may be considered. To be clear, a court is not forced to order installment payments. In In re Marriage of Price, the appellate court recognized that “installment payments may be appropriate in some cases,” but it also explained that courts are not required to order equalization payments in installments. 2013 IL App (4th) 120155, ¶ 47.
A structured payment arrangement may allow the accountant to retain ownership without immediately selling the practice or liquidating substantial assets. Yet, the accountant’s ability to make those payments must be realistically evaluated.
For example, a firm may have substantial appraised value but little cash available for distribution. Its revenue may be needed to maintain operations and satisfy existing debts. A payment arrangement that disregards those obligations might cause financial difficulties for the practice.
So, the parties should address the payment amount, deadlines, interest, and appropriate security for any deferred obligation. These terms matter greatly when the nonowner spouse will receive payment over multiple years rather than immediately.
In situations where the parties cannot agree on a workable distribution, Section 503(i) authorizes the court to “make such judgments affecting the marital property as may be just” and enforce them by ordering a sale of marital property. 750 ILCS 5/503(i).
A sale is a potential remedy, but licensing requirements, ownership agreements, and the practical availability of purchasers can complicate a transaction that involves an accounting firm.
Dividing an accounting firm requires more than establishing its fair market value. The court must structure a property distribution that recognizes the nonowner spouse’s marital interest and accounts for the firm’s ownership restrictions and continued operations. Finally, the financial circumstances of both spouses must be considered.
The Bottom Line On Dividing A
Valuing an accounting firm in an Illinois divorce requires identifying the actual ownership interest, evaluating the firm’s financial performance, and distinguishing the accountant’s personal earning capacity from the value attributable to the continuing business.
Client retention, staffing, recurring revenue, reasonable compensation, and ownership agreements can impact the firm’s fair market value. Additionally, an appraisal must distinguish personal goodwill, which is excluded from the marital estate, from enterprise goodwill that belongs to the business.
Once the marital value is established, the court must determine how to divide the marital estate in just proportions. The accountant may retain ownership while the other spouse receives an appropriate allocation of other assets or an equalization payment.
An accurate valuation along with a carefully structured property division can recognize the firm’s economic value without overlooking the challenges of transferring ownership or maintaining its operations.
Contact my Chicago, Illinois divorce law firm to discuss how an accounting firm may be valued and divided in your divorce.
Russell D. Knight is a Chicago divorce and family law attorney who has practiced family law since 2006. He represents clients in complex Illinois divorce matters involving closely held businesses, professional practices, business valuations, property division, and other difficult-to-value marital assets.
CASES, STATUTES, AND OTHER SOURCES REFERENCED IN THE VALUING AND DIVIDING AN ACCOUNTING FIRM IN AN ILLINOIS DIVORCE ARTICLE
225 ILCS 450/13 — Licensing Requirements For CPA Firms.
225 ILCS 450/8.05 — Regulated And Nonregulated Accountancy Activities.
225 ILCS 450/14.4 — CPA Firm Ownership And Licensing Qualifications.
26 U.S.C. § 7216 — Disclosure And Use Of Tax Return Information.
In re Marriage of Zells, 143 Ill. 2d 251 (1991) — Professional Goodwill And Future Earning Capacity.
In re Marriage of Talty, 166 Ill. 2d 232 (1995) — Personal Versus Enterprise Goodwill.
In re Marriage of Schneider, 214 Ill. 2d 152 (2005) — Professional Goodwill And Accounts Receivable.
In re Marriage of Gunn, 233 Ill. App. 3d 165 (1992) — Buy-Sell Agreements And Fair Market Value.
In re Marriage of Price, 2013 IL App (4th) 120155 — Equalization Payments And Installment Payments.
James R. Hitchner, Financial Valuation: Applications and Models, 5th ed. (Wiley 2024).
Business Valuation Resources, What It’s Worth: Accounting Firm Value (2015).
