Enterprise Goodwill versus Professional Goodwill
Posted By Posted by Damien McKinney on Jul 25, 2013 1:40pm PDT || Jul 25, 2013
The valuation of a party's business during a divorce proceeding can be complicated and often costly. It is generally accepted that the tangible assets in a business are marital property. For example, office equipment, inventory, and such are considered marital property and can be equitably divided in a divorce. Often that requires a professional appraiser to come into the business and give a detailed account of how much each tangible asset is worth. But, the court can go above and beyond the tangible assets in valuing a business. There are two competing theories in business evaluations, enterprise goodwill versus professional goodwill.
Enterprise goodwill is defined as the value of a business which exceeds its tangible assets and represents the tendency of clients/patients to return to and recommend the practice irrespective of the reputation of the individual practitioner. Enterprise goodwill is a marital asset.
On the other hand, personal or professional goodwill is attributable to the skill, reputation, and continued participation of an individual. Professional goodwill is not a marital asset. One significant factor in determining professional goodwill versus enterprise goodwill is the existence of a non-compete clause, or a covenant not to compete. If there is a covenant not to compete, that is considered professional goodwill and is not a marital asset. For example, if you are an accountant, yor name is on the door of the business, you conduct the majority of the client conferences and you are responsible for bringing in the clients to the practice, then your business consists mainly of professional goodwill and your business is not a marital asset. Another way to look at it is, if you were to remove yourself completely from the business, would the business be able to survive without you there? If not, then it consists of professional goodwill and is not considered a marital asset.
If you have a questions about valuation of your business or your spouse’s business, contact your expert family law attorney today for an initial consult.