In divorce cases, Arkansas has followed the rule that enterprise goodwill is marital property but personal goodwill is not. But the waters got a little muddy in recent years because of the Brave case, in which a restaurant owner claimed personal goodwill. Two different courts seemed to adopt conflicting positions on whether the owner of a nonprofessional business can claim personal goodwill that is excludable from the marital estate. The question arose again in a recent case and prompted the appeals court to issue a clarification on where matters stand after Brave.
In the instant case, the husband was the sole owner of a business that sold motors to operate gates. The husband claimed first that the business was not profitable and, in the alternative, that whatever value there was in the business was goodwill attributable to the husband. He said the success of the business relied on client relationships, which he had established and cultivated. If he were to sell the business, he would not be able to transfer his personal goodwill to the buyer.
The trial court said the argument that there was personal goodwill in a nonprofessional corporation “has been soundly rejected by the appellate courts of the State of Arkansas.” The court also credited the wife’s testimony that the business was worth more than what was reflected in the books and financial documents.
The state Court of Appeals affirmed the trial court’s value findings, saying “we cannot ascertain any significant personal goodwill in a business such as this, which involves the selling of motors to operate gates.” The appeals court pointed out that the husband cited to the 2013 Brave v. Brave appeals court decision, which allowed there was personal goodwill in a nonprofessional corporation, the restaurant. However, the state Supreme Court later vacated the 2013 Brave decision. The high court in Brave declined to decide whether there was personal goodwill in a nonprofessional business as opposed to a professional practice.
According to the Court of Appeals ruling on the instant case, “although it is settled law that personal goodwill is not a proper consideration in dividing a professional practice or business upon divorce ... this concept has not been extended by the supreme court to encompass a nonprofessional business such as the one involved here.”
A digest of Atherton v. Atherton, 2018 Ark. App. LEXIS 264 (April 11, 2018), and the court’s opinion will be available soon at BVLaw. Digests and the courts’ opinions for Brave v. Brave, 2013 Ark. App. LEXIS 570 (Oct. 2, 2013), and Brave v. Brave, 2014 Ark. LEXIS 232 (April 17, 2014), are available at BVLaw.