May 4, 2025
Goodwill in Business. The Basics. Part 1.
What is goodwill in business and why might it matter in your divorce?
Goodwill in business “represents the intangible value of a company’s reputation, brand recognition, customer loyalty, and other non-physical assets that contribute to its overall value.” In other words, if a buyer is willing to pay more for a business than the value of the machinery, equipment, inventory, materials, real estate, bank accounts, receivables, and other similar “hard” assets, they are probably also buying the goodwill of the business.
Why does this matter if a couple is divorcing in Connecticut? Because Connecticut is an equitable distribution state. This means that all assets and property may be taken into account by a court and allocated between divorcing spouses. So the more a business is worth, the more dollars there are to be divided between the spouses. Especially if the value of the goodwill is high compared to the value of the hard assets, the goodwill value may have a significant affect on the final property division.
For example, imagine a manufacturing company where the machinery, equipment and inventory is worth $300,000 and the business goodwill is $30,000. For purposes of equitable distribution, the business with goodwill included is worth 10% more than if the goodwill is excluded. So including the business goodwill here results in 10% more dollar value to be equitably divided between the spouses-$330,000 instead of $300,000.
Compare that to the situation where the total value of the business is $330,000 but only $165,000 of the value is attributable to the machinery, equipment and inventory while the remaining $165,000 is the goodwill. Here, including the business goodwill results in 100% more dollar value to be equitably divided between the spouses-$330,000 instead of $165,000.
The bottom line is that taking into account business goodwill can result in more dollars in your hands which are available after the divorce to be able to move forward with your life. But this is just the start of your goodwill education. There is more to come in next month’s blog post.
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