Business Goodwill

Business goodwill refers to the intangible value of a business that contributes to its earning power, which can include reputation and customer loyalty. In a community property state, any goodwill acquired during the marriage is considered community property and must be divided equally upon divorce, even if it cannot be sold separately.

During their marriage, Jane and Tom owned a successful bakery that developed a strong local reputation. When they divorced, the bakery's goodwill was assessed by an expert, who determined its value based on excess earnings. As a result, the goodwill was divided equally between Jane and Tom as community property.

Goodwill is good for the community, and it’s split at divorce!

Students often confuse personal goodwill, which belongs to an individual, with business goodwill, which is community property. They may overlook the distinction when assessing the value of a business.

Questions typically present a scenario involving a business owned by a couple and ask how to value the goodwill for division, often including details that may mislead students about personal versus business goodwill.