June 4, 2025
Goodwill in Business. Personal or Enterprise. Part 2.
What is the difference between personal and enterprise goodwill and why might it matter in your divorce?
Both enterprise goodwill and personal, also called professional, goodwill result in the value of a business being more than the value of the hard assets like machinery, equipment, cash and inventory. But they are not the same and under the laws of Connecticut are treated quite differently in a divorce.
Enterprise goodwill refers to the company’s reputation and its ability, as an institution, to attract and hold business even with a change of ownership. The key to enterprise goodwill is whether customers of the entity will stay with the entity upon the change of ownership. If you would continue buying your fertilizer at the local garden supply store even if the company was sold, that business probably has enterprise goodwill. Enterprise goodwill is the extra value Connecticut courts include in equitable distribution discussed in last month’s blog post.
But consider the accounting firm you retain to prepare your income taxes each year. Assume you have worked with one specific accountant and know their assistant but otherwise aren’t familiar with the other accountants in the practice. If yours left, you’d follow him again to wherever he ended up. He is the reason you return to the firm. The accounting firm benefits from goodwill since the value of the firm exceeds the combined value of the physical assets. But it is personal rather than enterprise goodwill since it is based on an individual’s reputation, experience, knowledge, training and ability, among other things. These traits and qualities are personal to an individual, your specific accountant, and are difficult to transfer. Therefore, in Connecticut, personal goodwill is not included in the value of assets to be equitably divided.
Personal goodwill does matter though and in certain circumstances can have a significant impact on divorce financial orders. Here’s why. Personal goodwill may reflect the future earning potential associated with an individual’s personal attributes. So, for example, earning capacity is one of the factors a Connecticut court must consider when entering alimony orders. It may also influence other financial items such as child support.
Personal goodwill is most often associated with professional or service businesses such as medical practices and law firms, but it is not limited to these. Typically personal good will is found where a key individual(s) essentially is responsible for all significant management decisions regarding the business enterprise, if the operations of the business are not functionally or economically separate from the individual and if the success of the business is directly interrelated to the activities of the individual. Thus, it can also exist among manufacturers, retailers, contractors, and other types of businesses.
Although analyzing the impact of personal goodwill is more complex than enterprise goodwill, an experienced divorce lawyer can guide you through the necessary analysis to help create the best outcome available.
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