Professionals like doctors, lawyers, dentists, CPAs, architects, and veterinarians face unique challenges when dividing property during a divorce. Often, professional practices are the most valuable assets in divorce settlements and deserve substantial legal attention. Attorneys and accountants must take both tangible and intangible assets into account when arriving at a valuation. While the nature of a practice’s tangible assets (such as property and revenue) may be apparent, intangible assets are equally important.
GoodwillThe International Glossary of Business Valuation Terms defines goodwill as “[t]hat intangible asset arising as a result of name, reputation, customer loyalty, location, products and similar factors not separately identified.” Goodwill is further divided into two categories: personal and enterprise. Personal goodwill refers to the value arising from an owner’s reputation and skills, while enterprise goodwill refers to the value arising from a company’s stature in an industry. In Texas, while courts are unable to divide “personal” value, they may divide “enterprise” value. To determine the presence of enterprise goodwill, professions must evaluate:
- Whether a business has a reputation apart from its owner;
- Whether a business has multiple employees, or whether one employee is responsible for the majority of its revenue;
- Whether a business contracts directly with its customers; and
- Whether a business has an established physical location.
Often a professional practice is the most valuable asset in a divorce settlement, so understanding this issue is important.
Here is a video from Jake Gilbreath on this subject: