Can the Family Court in South Carolina divide the Goodwill of a Business?
In the case of Moore v. Moore, 414 S.C. 490, 779 S.E.2d 533 (2015), the South Carolina Supreme Court addressed the issue of dividing the goodwill of a business. Previously, the courts in South Carolina have ruled that personal goodwill is not a marital asset and is not subject to being divided in marital litigation. The rationale was that in a professional situation such as a doctor, lawyer, etc. that but for the professional, there would be no business. Thus, only the value of the business would be divided.
In Moore v. Moore, the court distinguished “enterprise goodwill” from“personal goodwill”and determined that “enterprise goodwill” is divisible in family court. The court described enterprise goodwill as follows:
Enterprise goodwill is that which exists independently of one’s personal efforts and will outlast one’s involvement with the business.” In re Marriage of Alexander, 857 N.E.2d 766, 769 (Ill. App. Ct. 2006). “Enterprise goodwill ‘is based on the intangible, but generally marketable, existence in a business of established relations with employees, customers, and suppliers.’” Yoon v. Yoon, 711 N.E.2d 1265, 1268 (Ind. 1999) (quoting Allen Parkman, The Treatment of Professional Goodwill in Divorce Proceedings, 18 Fam. L.Q. 213, 215 (1984)). “Enterprise goodwill attaches to a business entity and is associated separately from the reputation of the owners. . . The asset has a determinable value because the enterprise goodwill of an ongoing business will transfer upon sale of the business to a willing buyer.” Wilson v. Wilson, 706 S.E.2d 354, 361 (W. Va. 2010). Many courts have found “[e]nterprise goodwill is an asset of the business and accordingly is a property that is divisible in a dissolution to the extent that it inheres in the business, independent of any single individual’s personal efforts and will outlast any person’s involvement in the business.” Yoon, 711 N.E.2d at 1268– 69 (citations omitted).
Fortunately, the court gave very clear guidance to the Family Courts on how to distinguish between the two forms of goodwill by including a chart providing examples of each. However, a rather simple way of distinguishing enterprise goodwill from enterprise goodwill is to consider two law firms. The first law firm is a sole practitioner. The other law firm is a multi-location law firm with multiple lawyers. If a lawyer comes or goes from the larger law firm the law firm will still continue to operate. As for the first law firm, if the lawyer retires or dies, the law firm does as well.