'Confounding incongruities' in recent divorce case

BVWireIssue #246-2
March 8, 2023

marital dissolution/divorce
goodwill, intellectual property, divorce, personal goodwill, willing buyer, earnout, intangible asset

A complex divorce case in Idaho included a number of valuation issues, one of which was the personal vs. enterprise goodwill question. The state’s Supreme Court upheld the lower court’s ruling that a material amount of value of an entity that was formed as a result of a buyout transaction was personal goodwill and thus excluded from the marital estate. The entity was deemed a start-up even though it was the result of the transaction. The husband, who was an owner of the firm that was bought, had a share of this new entity, with which he also had an employment contract and a non-compete agreement.

Far apart: The question became whether this was a case where there was a transaction and therefore there should not be any personal goodwill included. The Supreme Court clearly stated that, under Idaho case law, personal goodwill was not transferrable. “There was a transaction that can determine a value—maybe,” writes BVLaw editor Jim Alerding (Alerding Consulting), in a recent post in BVLaw News. “But the Supreme Court also said that the value of the transaction and the value for divorce purposes were two different dates, with the divorce value being the later date.” The court upheld the existence of personal goodwill and the valuation of the husband’s share at $163,373 versus the $1,147,500 the wife contended. The court also noted that awarding the wife a share of this new entity would fail to sufficiently “disentangle” the former couple.

“The result here was not unusual from the standpoint of divorce litigation,” Alerding writes. “Such litigation was often filled with confounding incongruities. This appeared to be one of those cases.”

Stay tuned: One of the valuation experts in the case gives an inside look in the April issue of Business Valuation Update.

The case is Lamm v. Preston, 2023 Ida. LEXIS , 4 and a case analysis and full court opinion are on the BVLaw platform.

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