Goodwill

Question 1

General Rule: Spouse’s Business

Answer 1

If a spouse’s business or professional practice is acquired during marriage, that business or practice is Community Property, including both:

Tangible Property – real estate, equipment, inventory, office furniture, money in the bank

Intangible Property – goodwill

Question 2

Goodwill

Answer 2

An expectation of continued public patronage, customer loyalty, and a value placed on the probability that an establishment will continue to exist and be successful.
- Value of a business in excess of its assets

Goodwill is transferable (it is transferred along with the business when it is sold)

Mueller: Businesses and professionals (lawyers and doctors) can develop goodwill

Finby: Financial advisors may have goodwill depending on how successful they are

Question 3

Valuing Goodwill

Answer 3

Essentially a battle of experts (business spouse will argue its small, other spouse the opposite)

Foster: could really be anything, its always somebody’s opinion

Two Main Methods:
i. Market Analysis – what would a potential buyer pay for the community business if sold at the time of divorce. Goodwill = total value of business - assets

ii. Capitalization Method – what is the net income of the professional practice for one year subtracted by a reasonable salary for a professional of comparable experiences multiplied times a number of years (valid under Foster)
1. Projection of how successful the business is going to be based on how successful it has been
2. Goodwill = net income – reasonable salary * multiplier

Fortier: Cannot value goodwill by any method that takes into account post-marital efforts of either spouse
i. The earnings and projected earnings of a spouse after separation are their SP
ii. All value of goodwill must exist at time of divorce

Question 4

Goodwill for Celebrities

Answer 4

NO Goodwill for Celebrities

Celebrity goodwill is not a property right divisible at divorce

A person doing business does not constitute a business (they aren’t a practice, like a doctor or lawyer)

Artists, entertainers, athletes are not professionals for whom goodwill attaches

McTiernan: Celebrity professional standing is entirely personal and cannot be sold or transferred