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How Does the Valuation of Goodwill Affect Professional Practice Ownership in a North County Divorce?

On Behalf of | Mar 29, 2020 | Professional Practice & Business Ownership

What is “Goodwill” and how does the valuation of Goodwill affect professional practice ownership in a North County or Carlsbad divorce? Goodwill is the human impact upon a business, and the effect a specific person has upon the likelihood of continued patronage. If the professional facing a divorce in North County or Carlsbad was no longer part of the professional practice what impact would that have upon the valuation of the practice itself?

The concept of Goodwill is legally quite complex, but the essence of the idea is that a professional practice is much more than the physical building which houses it, or the fixed assets used within the practice. It emphasizes the unique personality, skill set, reputation and the value these bring to the practice itself. It considers the likelihood that previous customers will continue to do business in the future and the impact this will have upon the profitability and therefore the value of the professional practice.

The experienced business divorce attorneys at Burke & Domercq have substantial legal skill in this area based upon decades of service in Carlsbad family law courts as well as our certification as Family Law Specialists.

A common approach to the valuation of Goodwill is known as the “Excess Earnings” method. This method first seeks to establish the practitioner’s “average” net earnings. This would be contrasted with the salary of a comparable salaried employee.

After an allocation is made to reflect a “fair return” on the assets of the practice, excess earnings basically attempt to subtract the average salary of the control case to the professional’s average net earnings pre-tax.  The difference is then factored over a period of years based upon many considerations, and a valuation may thereby be established for Goodwill.

There are several other methods which may employed, and the skill, experience and expertise of your attorney will make an impact on the outcome in your case and ultimately the valuation of the community property interest in the professional practice.

Goodwill is a community property or marital asset, and if it was developed during the term of the marriage the court must consider the value of Goodwill when dividing community property.

We invite you to review the recommendations of our clients and contact us or call 760-389-3927 to schedule an appointment with one of our experienced attorneys. Learn more about the nature of Goodwill in your case and how it will ultimately affect the valuation of the professional practice associated with your divorce.