Imagine a situation where you start a solo professional practice during your marriage. That business becomes successful due entirely to your “name” and “know-how”. In fact, if you were to be replaced with someone else, the business would cease to exist because the entire value of the business was wrapped up in your personal expertise. This is an example of what is called personal goodwill in a business.
Compare that to a situation where the success of a business is not tied to any specific individual. Rather, the client base and reputation are already cemented in the business name to where other individuals can take it over and continue operating it successfully. This is called enterprise goodwill.
This distinction is very important in the context of property division in a divorce. Personal goodwill is not considered to be marital property subject to division by the court. On the other hand, enterprise goodwill is attached to the business itself, and is considered community property that is subject to a just and right division by the Court.
If you are faced with a situation where your business was built with personal goodwill, it is important to consider hiring an expert to help establish the business as non-marital property. Although it is not cheap to hire a qualified expert, the expense may be well worth it if you have a valuable business that will be your primary source of income after the divorce.
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