Dealing With The Goodwill Associated With The Business

Hi, I'm Dave Ward with The Ward Law Firm and something that has to be addressed whenever we're dealing with the dissolution of a marriage where a professional practice of some kind is owned by the parties, whether that be a dentist's office or an accounting office, another lawyer for example. 

Is dealing with the goodwill that's associated with the business. In a professional practice, there's usually two different types of goodwill. There's Enterprise Goodwill, which is the goodwill that is focused at the firm itself, and then there's something called Personal or Individual Goodwill and that's the goodwill that's associated with the person who is running the practice.

So the lawyer or the dentist or the accountant, those types of things and they're both treated differently in a lot of different jurisdictions. In the majority of jurisdictions, well, I think in every jurisdiction everybody agrees that when we're talking about a business valuation when we're trying to divide assets in a marriage, enterprise goodwill is something that's always divisible. Where the disagreement comes in is, whether or not personal goodwill is divisible. Georgia, has not specifically answered the question but it has given us a pretty good idea of what it's thinking.

In the majority of jurisdictions personal goodwill, that is the goodwill that is oriented specifically at the operator of the business, is generally not divisible. With the idea being if the business was being sold to somebody else, that is not something that they would pay for because they're not going to keep that person going long term. So for that reason, they find it inappropriate to include it in a divorce. There is a minority opinion, of course, as they're so often is in the law.

That says, no that needs to be included too because that personal goodwill was built up as a result of the efforts of the marriage, so that's something that the spouse should be entitled to share in. Georgia, as I said has not answered that question specifically but they've given us some idea of where they might go with that question in a case called Miller v. Miller and this was an issue that the court had to decide with regard to the goodwill in the case and the court in that case, frequently when a court is asked to do something and it requires some legal reasoning behind it, but it's not the question that the court has specifically being asked to answer a lot of times what a court will do is simply assume without deciding.

And what that usually means is, we're just going to assume that that's the case and we're going to act as if it's the case. And in the Miller case, what the court did is they assumed without deciding that personal goodwill is not something that's divisible in the dissolution of a marriage under Georgia law. So while it doesn't definitively answer the question, it does give courts some guidance of where we think they might go if this question is ultimately presented to them.

So, in answer to most people's questions, I would say generally probably expect most judges are not going to include personal goodwill in any evaluation of a business that's being divided during a divorce proceeding. So, if you have any questions about this or anything else related to your case, give us a call. I'm Dave Ward with The Ward Law Firm and we help parents protect those things that matter most.

 

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