Personal Goodwill in a Texas Divorce

Personal Goodwill in a Texas Divorce

What is Personal Goodwill in a Texas Divorce?

Written by: Anthony DeBenedictis, CPA, ABV, CFF, CFE

Goodwill is an intangible asset often defined as “the value of a trade or business attributable to the expectancy of continued customer patronage,” and that “this expectancy may be due to the name or reputation of a trade or business or any other factor.”[1]  Goodwill then may arise as a result of name, reputation, customer loyalty, location, products, and similar factors not separately identified.[2]

While goodwill from a business (enterprise goodwill) is divisible property between spouses, personal goodwill is not.  In a business valuation for a Texas divorce, an analyst distinguishes between personal and enterprise goodwill to determine which is and is not part of the marital assets.[3]

Personal goodwill can have a profound effect on the future financial expectations of the non-earning spouse when a professional services business (legal, medical, sales, insurance, accounting, etc.) has been the material income generating asset over the length of the marriage as most of the business value may be derived from the personal goodwill of the individual.  Because of its impact on divisible financial wealth, personal goodwill is often the most contentious aspect of a business value in a Texas divorce.

ABIP’s experienced forensics and valuation professionals are here to assist you with your business valuation, asset tracing and characterization needs during this trying time in one’s life.

 

 

[1] Yoon v Yoon; IRS Regs. Sec. 1.197-2(b) (1)

[2] SSVS #1 Glossary of Terms

[3] Texas PCJ 203.2

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