Key ruling on enterprise goodwill from South Carolina Supreme Court

Moore v. Moore, 2015 S.C., LEXIS 343 (Oct. 7, 2015)

What keeps family courts up at night? According to the South Carolina Supreme Court, it’s the issue of goodwill. Judges on the high court may have experienced sleepless nights themselves recently in the face of a novel legal issue concerning enterprise goodwill.

South Carolina has a “categorical rule” against the inclusion of personal goodwill in the marital estate, but only recently was the Supreme Court asked for the first time “whether enterprise goodwill can be a marital asset subject to division.”

The question arose in a divorce in which the parties fought over the valuation of a successful retail business that sold high-end light fixtures and home furnishings and accessories. The wife founded and built the business. But the husband played a role in expanding operations to the Internet and in creating a successful Web presence, such that at the time of divorce most the business’s sales were from online purchases.

Three appraisers (two for the wife and one for the husband) agreed that most of the company’s value was in goodwill. The wife’s two experts contended that the wife’s creative approach to the website’s layout, her ongoing work on the website, and her eye for selecting desirable products were key to converting Internet users from visitors to clients. Accordingly, “at least” 20% to 25% of the total goodwill was personal to the wife and not subject to marital distribution.

The husband’s expert did not specifically determine personal goodwill but on cross-examination admitted there was “some” of it in the business. He guessed it might amount to “5% to 10%.”

The trial court sided with the husband’s expert and allocated 10% of the goodwill to the wife as personal goodwill. It decided the remaining 90% of the company’s value, excluding the value of its fixed assets, was enterprise goodwill and included in the marital estate.

Both parties appealed to the state Supreme Court. The wife claimed it was wrong for the trial court to include any goodwill in the value of the business. The husband contended the court erred in assigning any part of the company’s value to the wife’s personal goodwill.

To find out how the South Carolina Supreme Court resolved the issue, click here.