The Double Dipping Debate: Business Valuation, Salary Normalization, and Maintenance in Illinois Divorce

When experts disagree about whether the same income can be counted twice, understanding the law becomes critical.

The Setup

A business owner earns $258,000 annually from his plumbing company. During divorce proceedings, his wife's valuation expert "normalizes" that salary—reducing it to $250,000 (the cost of a hypothetical replacement manager) for purposes of valuing the business. The $8,000 difference gets added back to the company's profits and capitalized into the business value.

At a 20% capitalization rate, that $8,000 adjustment adds $40,000 to the marital estate. The wife receives half—$20,000—as her share of that capitalized income stream.

Then comes maintenance. The expert calculates support based on the husband's actual income: $258,000.

One expert calls this standard practice. Another calls it "double dipping"—counting the same $8,000 twice. Once as property. Once as income for support.

Who's right? The answer is more nuanced than either side suggests.

The Zells-Talty-Schneider Framework

Illinois has developed specific rules about when income streams can—and cannot—be counted in both property division and support calculations. Three Illinois Supreme Court decisions form the foundation.

In re Marriage of Zells (1991)

The modern framework begins with Zells, where the Supreme Court addressed whether "professional goodwill" in a law practice constitutes marital property.

The Court's answer: No. Professional goodwill represents the ability to acquire future income. If courts capitalize that future earning capacity into a present asset value and award a portion to the non-owner spouse, then also use those same future earnings to calculate maintenance, the non-owner spouse receives a double recovery.

In re Marriage of Talty (1995)

Talty extended Zells beyond professional practices to commercial businesses—in that case, a car dealership. The Court introduced a critical distinction:

• Personal Goodwill: Value derived from the owner's personal efforts, reputation, and relationships. Non-marital. Excluded from asset division to avoid double dipping with maintenance.
• Enterprise Goodwill: Value derived from the business's location, brand, assembled workforce, and systems—value existing independently of the owner. Marital property subject to division.

The Court remanded because the trial court failed to distinguish between these two types. To the extent goodwill depended on the owner's personal efforts, those same efforts would be considered in determining income for support—making it impermissible to also count them as property.

In re Marriage of Schneider (2005)

Schneider reinforced the strictness of this rule. The wife had waived maintenance, and the appellate court reasoned that since there was no maintenance award, there could be no "double dipping"—therefore, personal goodwill should be treated as marital property.

The Supreme Court reversed. Personal goodwill is a surrogate for the owner's future earning capacity and is simply not property under the Illinois Marriage and Dissolution of Marriage Act. Whether maintenance is paid or not is irrelevant to the classification.

The Opposing View: Illinois Permits Broader Double Counting

Here's where the analysis becomes contested.

A separate line of Illinois appellate decisions—including the First District's In re Marriage of Pratt (2014)—affirmatively permits assets divided as marital property to also be considered income for support purposes.

In Pratt, the husband argued that using his stock options and restricted stock—already divided as marital property—as income for child support constituted impermissible double dipping. The court rejected this argument, holding that marital property can also be income for support purposes. Most significantly, the court struck down a settlement provision attempting to exclude such property from income calculations as against Illinois public policy.

This principle appears in other cases:

• In re Marriage of Colangelo (2d Dist. 2005): Even if stock distribution is marital property, it can also be income for child support.
• In re Marriage of Klomps (5th Dist. 1997): Retirement benefits divided as marital property were properly included as income for child support.
• In re Marriage of Lindman (2d Dist. 2005): IRA distributions properly included in income despite the IRA being allocated in property settlement.

The most recent guidance comes from In re Marriage of Dahm-Schell (2021), which established a practical test: the question is whether the income has been previously imputed against the recipient for purposes of support calculations. If not previously counted, including it does not constitute impermissible double counting.

The Critical Distinction

These competing lines of authority can be reconciled by understanding what each prohibits:

The question in any salary normalization case is: Does the "excess" being capitalized represent personal earning capacity (Zells problem) or enterprise profit (potentially permissible)?

Where Salary Normalization Fits

Here's the analytical challenge with salary normalization:

When an expert reduces the owner's salary from $258,000 to $250,000, they're asserting that a generic replacement manager could generate the same profits for $250,000. The $8,000 excess is characterized as return on ownership—profit—rather than return on labor.

If that characterization is correct, the $8,000 becomes enterprise value, not personal goodwill. It gets capitalized into the business value and divided.

But then what happens at the maintenance stage?

No published Illinois decision directly addresses whether salary normalization adjustments in business valuation create impermissible double counting when actual salary is subsequently used for maintenance.

The Personal Goodwill Discount Question

Experts often apply a "Personal Goodwill Discount" (commonly 20-30%) to business valuations to segregate enterprise goodwill from personal goodwill. This raises the question: Does the discount cure any double dipping?

Arguments That It Does:

• The discount acknowledges that some business value derives from the owner's personal earning capacity
• By excluding that percentage, the remaining value represents enterprise goodwill—legitimately divisible property
• The owner's full income remains available for support because personal goodwill was already removed from the asset

Arguments That It Doesn't:

• A generic percentage discount is a blunt instrument
• Unless the discount mathematically equals the capitalized value of the specific income stream used for support, some overlap persists
• The proper methodology is a "with and without" analysis—comparing business value with and without the owner—not an arbitrary percentage

The Standard of Review Factor

Illinois applies abuse of discretion review to both property division and maintenance determinations. Under Schneider, a trial court abuses its discretion only where no reasonable person would take the view adopted.

This standard significantly impacts the appellate calculus. Even if the double-dipping argument has merit, a trial court's acceptance of either methodology would likely survive appellate scrutiny unless it produces a result "no reasonable person would take."

The definition of income is reviewed de novo. The application of that definition to specific facts receives abuse of discretion review.

Practical Implications

For business owners facing this issue, the key questions are:

1. What methodology did the expert use for normalization? Was the replacement salary figure supported by market data, or arbitrary?
2. What income figure is being used for support? Is it the actual income or the normalized income?
3. Are these figures consistent? If the valuation assumes the owner is "worth" $250,000 as a manager, can maintenance logically be based on $258,000?
4. What does the personal goodwill discount actually capture? Was it calculated using a rigorous "with and without" method, or a generic percentage?
5. Which income streams overlap? Can you specifically identify dollars that appear in both the capitalized earnings and the maintenance calculation?

For the spouse of a business owner, the questions are inverse:

1. Is the normalization appropriate? Does the owner actually take above-market compensation, or is the salary fair value for their work?
2. Would the business survive the owner's departure? Enterprise goodwill exists only if value transfers with the business.
3. Is the personal goodwill discount excessive? A higher discount reduces marital property but may undervalue legitimate enterprise goodwill.

The Bottom Line

Illinois law establishes clear principles but leaves room for expert disagreement in application:

• Personal goodwill is never marital property (Schneider)
• Personal earning capacity cannot be counted both as property and as income for support (Zells, Talty)
• Assets divided as property can often also be income for support (Pratt, Colangelo, Klomps)
• Salary normalization falls in a gray area between these principles

The outcome in any particular case depends on how the trial court characterizes the specific income streams at issue—and whether that characterization is internally consistent between valuation and support.

Attorneys and experts navigating this issue should be prepared to argue both the narrow reading of Zells (prohibiting only personal goodwill double counting) and the broader consistency principle (requiring aligned assumptions between valuation and support). The absence of direct precedent on salary normalization means the trial court has significant latitude—which cuts both ways.

Source Materials

Illinois Supreme Court Cases:

• In re Marriage of Zells, 143 Ill. 2d 251 (1991) — PDF Download
• In re Marriage of Talty, 166 Ill. 2d 232 (1995) — Full Text
• In re Marriage of Schneider, 214 Ill. 2d 152 (2005) — Full Text

Illinois Appellate Court Cases:

• In re Marriage of Pratt, 2014 IL App (1st) 130465
• In re Marriage of Colangelo, 355 Ill. App. 3d 383 (2d Dist. 2005)
• In re Marriage of Klomps, 286 Ill. App. 3d 710 (5th Dist. 1997)

Written by Jonathan D. Steele

Chicago divorce attorney with cybersecurity certifications (Security+, ISC2 CC, Google Cybersecurity Professional Certificate). Illinois Super Lawyers Rising Star 2016-2025.

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