Professional Goodwill in Marital Dissolution Cases

Abstract

The adoption of principles of equitable distribution has substantially altered the law pertaining to the division of property at dissolution. These principles are based on the assumption that marriage should be treated as any other partnership and upon dissolution the assets should be divided between the partners. In most jurisdictions courts are authorized only to divide the marital property not the spouses' separate property. Because of this limitation, the classification of the property after marriage becomes the crucial issue. The focus of this article is whether the intangible asset of goodwill of a professional practice should be classified as marital property and therefore subject to division. Courts in virtually every jurisdiction have addressed the issue. On one extreme are those that refuse to acknowledge professional goodwill as a marital asset. On the other are those that recognize goodwill even if what is being valued appears to be reputation. In the middle are those cases that recognize goodwill as marital property, but only to the extent that it can be shown to exist independently of professional reputation; which means it must be marketable.

Keywords: Professional goodwill, Divorce, Dissolution, Marriage, Partnership, Marital property, Marital asset, Professional reputation, Separate property, Community property, Intangible, Marketability

JEL Classification: J12, J16, J17, J18, K19, K39