Often overlooked angle in divorce valuations

BVWireIssue #147-2
December 10, 2014

Valuation experts could be overvaluing a business caught up in a divorce, according to Alan Zipp in the article "In Divorce, Who Owns the Goodwill?" At issue is the personal goodwill that belongs to a person other than the divorcing parties of a business that is being valued as part of a marital estate. Zipp points out that, under generally accepted BV methods using an income approach, personal goodwill of the other owners may be included in the valuation of the business. Therein lies the problem.

Back it out:In states where personal goodwill has been determined not to be marital property, it is incumbent on the appraiser to identify and value the personal goodwill of all individuals [italics added] and to exclude that personal goodwill value from the marital property value of the enterprise,” he writes in the December 2014 issue of Business Valuation Update, which is devoted to valuations in a divorce context.

Interestingly, Zipp presents the concept from the legal perspective of property ownership. That is, the value of personal goodwill should not be part of the marital estate because neither the business entity nor the divorcing spouse has a legal property ownership interest in the personal goodwill of the other owners of the business.

What do you think? We’d like your comments on this different perspective on personal goodwill in divorce.

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