Edward Degas' "Landscape With Smokestacks"

CHICAGO (CNN) -- A landmark case about art stolen by the Nazis has been resolved out of court. The two parties who disputed an Edgar Degas pastel settled their dispute Thursday, according to one of the claimants and the museum caught in the middle.

The case was typical of hundreds of disputes over the the rightful ownership of valuable art stolen by the Nazis during World War II. It would have been the first dispute of its kind to go to trial in the United States. The legal proceeding had been scheduled for next month.

The dispute highlighted the conflict between families whose property was stolen decades ago and families who later bought it legitimately without knowing it was stolen.

On one side were Nick and Simon Goodman and their aunt, Lili Gutmann, heirs of the original owners, who were Holocaust victims. On the other side was art collector and retired pharmaceutical executive Daniel Searle, who bought the art.

Friederich and Louise Gutmann owned a vast art collection before World War II

Under the settlement, proceeds from the painting, called "Landscape With Smokestacks," will be split evenly after the picture is purchased by The Art Institute of Chicago. The settlement stipulated that the museum will credit both families when displaying the painting.

"This settlement, which allows us to preserve the pastel's history in one of the country's finest art museums, represents a fair resolution in this complex case," said Nick Goodman in a statement.

During World War II, Hitler's brigades targeted art collectors, especially Jewish ones such as the Goodmans' grandparents, Friederich and Louise Gutmann, a wealthy German couple whose collection included works by Degas, Renoir, Botticelli, Franz Hals, and other artists. In 1939, the Gutmans moved their collection to Paris, where it was looted and dispersed.

The Gutmanns died in a Nazi concentration camp, and many of the family's holdings disappeared. Over the years, the Goodmans -- they had Anglicized their name -- recovered 25 of 40 missing paintings, but the Degas was among the missing.

In 1987, Daniel Searle purchased the pastel in good faith from a New York gallery for $850,000. Searle loaned it to the Art Institute, where it has remained in storage since the Goodmans filed their lawsuit against Searle.

An independent appraisal will determine how much the museum will pay for the work.

The museum will begin displaying the Degas picture on October 9 for a limited time. Because the pastel is vulnerable to overexposure to light, it will be rotated with other works on paper in the collection.