PERSONAL GOODWILL

In marital dissolutions, the valuation of a privately held company and the determination of alimony can result in double benefits to the so called non-monied spouse. This occurs as a result of the present value of alimony, which comes from the monied spouse's earnings being counted twice. First counted as alimony, then again in the value of the privately held business.

The theory behind all this is that
1) the monied spouse's salary is compensation for contributions to the business and
2) that Personal Goodwill approximates the monied spouse's future earnings power.

Thus, as the theory goes, the non-monied spouse should only receive alimony or a portion of Personal Goodwill, but not both as they are one in the same.

Assuming that the primary valuation component to a privately held business is its earnings potential, valuations frequently are comprised of the present value of those future cash flows. The components of a valuation should isolate the salary of the monied spouse from that of the remaining components of company value.

Accordingly, the valuation of the privately held business should be separated from the present value of the monied spouse's "Personal Goodwill." In an equal division of assets, the non-monied spouse would receive alimony equal to may be half the personal goodwill plus half the business value.

Venue

Thirteen states completely rejected the double dipping argument.
These states do not require financial experts to separately value goodwill or to distinguish between personal and business goodwill. Courts in these states allow the nonmonied spouses to receive their fair share of their spouses's business interests including all business and personal goodwill regardless of any alimony payments.

Five states find that double dipping occurs both with personal and business goodwill.

Most states have ruled in favor of the monied spouse, finding that there is a duplication when the nonmonied spouse receives both alimony payments and an interest in the monied spouse's business.

POSITION By STATE:

Marital property includes Business Goodwill but excludes Personal Goodwill:
Alaska,
Arkansas,
Connecticut
Delaware
Florida
Hawaii
Illinois
Indiana
Maryland
Massachusetts
Minnesota
Missouri
Nebraska
New Hampshire
Oklahoma
Oregon
Pennsylvania
Rhode Island
Texas
Utah
Virginia
West Virginia
Wisconsin
Wyoming

Marital Property includes all Goodwill:
Arizona
California
Colorado
Kentucky
Michigan
Montana
Nevada
New Jersey
New Mexico
New York
North Carolina
North Dakota
Washington


Marital property exclude all Goodwill:
Kansas
Louisiana
Mississippi
South Carolina
Tennessee

State that are Undecided:
Alabama
Georgia
Idaho
Iowa
Maine
Ohio
South Dakota
Vermont

Questions financial experts should ask to determine whether Personal Goodwill exists include the following:

* Has the owner attained advanced degrees, possess distinctive skills, number of years of experience, professional licenses
* How much of the company’s business is generated through the owner’s personal marketing efforts?
* Are sales leads generated from the owner’s personal reputation and community involvement?
* Does the company’s legal name contain the owner's surname?


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