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How do you handle an intangible like ‘goodwill’ in divorce?

On Behalf of | Aug 15, 2014 | High-Asset Divorce

Few couples in Ohio going through divorce are likely to make it through the process without some emotional upheaval. The severing of a relationship of any kind is painful. The dissolution of a marriage involves dynamics that make the emotional impact that much greater.

Among the most trying aspects of divorce can be the division of assets. The standard for completing this step used in Ohio is based on a theory of each spouse getting one half of all property. Where a tangible asset can’t be divided in half, a valuation is usually made and the court makes an award based on a division of the dollar amount.

But what if the asset in question is a business, specifically a service business, in which one or the other spouse is the principal revenue generator? Further, what if the income stream for the business depends on the character of that spouse? That intangible is called “personal goodwill.”

Putting a value on that can be challenging, but the courts may consider it personal property so it could be subject to division. So how is it done? Professionals who work in this area say the critical factor to the answer is whether it is possible to sell or transfer the goodwill in some way.

If the goodwill is inherent in the enterprise; that is, separate from the owner by virtue of its location, licensing, trademarking or branding; the potential for transfer is clear. If the goodwill is personal in nature, it might be argued that the value of the business doesn’t exist without the individual who provides the service.

There are cases in which courts have accepted a valuation of a business based in part on its earnings record. The issue that can present is that if the business-owning spouse is ordered to pay spousal support as part of the divorce and then must also divide half the value of anticipated earnings, it effectively amounts to double dipping.

The thing to note is that if that kind of scenario is a concern in your divorce, it’s crucial to make sure your attorney is aware of it — for the sake of truly equitable division.

Source: Divorce Magazine, “Proper Evaluation of “Goodwill” of a Business During Divorce,” Bruce Richman, accessed Aug. 13, 2014