Valuing Professional Practices for Divorce

Sep 02

Valuing Professional Practices for Divorce

valuing professional practices for Divorce

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.
 

Goodwill

The 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.

If the valuation and division of a professional practice is at issue in your divorce, consider reaching out to an experienced family law attorney.

 
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:

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