When a professional practice is involved in a divorce, one complicated aspect of dividing this asset is “goodwill.” In New Jersey, where courts aim for equitable distribution of marital assets, this can be particularly challenging.
Goodwill refers to the value of a business beyond its physical assets. It’s the reason why people choose one doctor’s office over another or why clients stick with a particular lawyer. Goodwill can include things like reputation, customer loyalty and brand recognition. However, in a professional practice, it can be difficult to distinguish between what stems from the professional’s own skills and reputation and what belongs to the business itself.
Personal vs. enterprise goodwill
Personal goodwill is all about the individual professional. It’s the value that comes from a person’s unique skills, their relationships with clients and their reputation in the community. This could be a dentist’s expertise in a certain procedure or an accountant’s reputation for giving insightful financial advice.
Enterprise goodwill, on the other hand, belongs to the practice itself. It’s the value that would remain even if the owner left. This might include things like:
- The practice’s location
- Its established procedures and systems
- The reputation of the business as a whole
- Brand recognition
Courts treat these two types of goodwill differently. They usually consider enterprise goodwill a marital asset, which means the court can divide its value between the parties in the divorce. Personal goodwill, however, is part of one person’s future earning potential, which courts generally don’t divide in a divorce.
Separating personal and enterprise goodwill
Figuring out how much of a practice’s goodwill is personal or enterprise can be complicated. Professional valuators use different methods to estimate and separate these types of goodwill, which can depend on factors such as:
- The type of practice
- How much the owner takes part in daily operations
- How much the practice relies on the owner’s personal connections
- Whether the practice’s value can be easily transferred to someone else
If you’re going through a divorce that involves a professional practice, remember that each case is unique. Since business valuations can be complex, professional legal counsel may be necessary to protect your interests and ensure a fair outcome.
Preserve your professional legacy
Your practice is more than just an asset – it’s a big part of your life’s work. Don’t hesitate to reach out to an attorney who can help you explore potential courses of action.
