Goodwill is a business’s value beyond its physical assets and liabilities, including reputation, customer loyalty, and brand recognition. It can be an important factor when the court evaluates a business as part of a marital estate.
The difference between personal and enterprise goodwill
Personal goodwill is the value linked to a person’s skills, reputation, and relationships. It is non-transferable, so the court does not usually consider it part of the marital estate. On the other hand, enterprise goodwill is the value that belongs to the business itself, not any one person. It includes the business’s brand, customer base, location, and how it operates.
Since enterprise goodwill is part of the business’s overall value, it can increase the total value of the marital estate, affecting the division of assets. It can also be a point of discussion for reaching a fair settlement, especially if one spouse is keeping the business.
Challenges in asset valuation and division during divorce
When a business has both personal and enterprise goodwill without a clear separation, dividing assets during a divorce can be tricky. This often happens in businesses tied to one or both spouses’ professional practice, like dental offices, law firms, and real estate agencies.
In these situations, courts usually bring in forensic accountants and valuation experts to analyze the business. They look at several key factors to tell the two types of goodwill apart:
- Customer relationships: Are clients loyal to the individual (personal goodwill) or the business (enterprise goodwill)?
- Income generation: Is the income mainly from the individual’s efforts or the business’s operations?
- Marketing and branding: Does the business’s marketing depend on the individual’s reputation or the company?
- Contracts and agreements: Are there non-compete or employment contracts that tie the individual to the business?
Courts will evaluate personal and enterprise goodwill individually as much as possible.
Protect your assets
Divorce might require a close examination of every part of what you owned during your marriage. It’s crucial to know your worth and what you’ve contributed. Equip yourself with the knowledge and strategies to protect your assets during this challenging time.
