Divorce proceedings trigger the need for a business valuation when a business is involved. It is very important to define the standard of value and to separate personal goodwill from enterprise goodwill as part of the valuation process.
Standard of Value
The standard of value defines the value to whom and under what assumptions. This includes both real and hypothetical circumstances. All value is a function of the present worth of the future benefits the ownership interest is expected to generate for the holder of that interest.
In divorce cases, the standard of value determines whether the business interest is valued as if it is to be sold (Fair Market Value) or valued as if it is held by a specific individual (Fair Value to the Holder or Investment Value).
Goodwill
In many states, personal goodwill is not considered a marital asset. In some states, no goodwill, including enterprise and personal goodwill are considered marital assets.
The following table shows generally where each state stands regarding a standard of value and whether personal goodwill is considered a marital asset. However, these are generalizations, and each state has its own particular nuances.
Table of Standard of Value and Personal Goodwill in Divorce by State
Note the below are subject to change and as noted, there are nuances to discuss based on the state and the situation. Please contact us to discuss.
| State | Standard of Value in Divorce | Is Personal Goodwill a Marital Asset?* |
|---|---|---|
| Alabama | Fair Value | Undecided |
| Alaska | Fair Market Value | No |
| Arizona | Investment Value | Yes |
| Arkansas | Fair Market Value | No |
| California | Investment Value | It’s complicated. |
| Colorado | Investment Value | Yes |
| Connecticut | Fair Market Value | No |
| Delaware | Fair Market Value | No |
| District of Columbia | Fair Market Value | No |
| Florida | Fair Market Value | No |
| Georgia | Fair Market Value | No |
| Hawaii | Fair Market Value | No |
| Idaho | Fair Market Value | It’s complicated. |
| Illinois | Fair Market Value | No |
| Indiana | Fair Market Value | It’s complicated. |
| Iowa | Fair Market Value | It’s complicated. |
| Kansas | Fair Market Value | Focus on ‘marketability’ or ‘salability’ |
| Kentucky | Fair Market Value | No |
| Louisiana | Fair Market Value | No |
| Maine | Fair Market Value | No |
| Maryland | Fair Market Value | No |
| Massachusetts | Fair Value | No |
| Michigan | Investment/Fair Market Value | Yes |
| Minnesota | Fair Market Value | No |
| Mississippi | Fair Market Value | No (includes all goodwill) |
| Missouri | Fair Market Value | No |
| Montana | Investment/Fair Market Value | Yes |
| Nebraska | Fair Market Value | Yes |
| Nevada | Investment Value | Yes |
| New Hampshire | Fair Market Value | No |
| New Jersey | Fair/Investment Value | Yes |
| New Mexico | Investment Value | Yes |
| New York | Investment/Fair Market Value | Yes |
| North Carolina | Fair Market Value | Yes |
| North Dakota | Fair Market Value | Yes |
| Ohio | Fair Market Value | Yes |
| Oklahoma | Fair Market Value | No |
| Oregon | Fair Market Value | No |
| Pennsylvania | Fair Market Value | No |
| Rhode Island | Fair Market Value | No |
| South Carolina | Fair Market Value | No |
| South Dakota | Fair Market Value | It’s complicated. |
| Tennessee | Fair Market Value | It’s complicated. |
| Texas | Fair Market Value | No |
| Utah | Fair Market Value | No |
| Vermont | Fair Market Value | No |
| Virginia | Fair Value | No |
| Washington | Investment Value | Yes |
| West Virginia | Fair Market Value | No |
| Wisconsin | Fair Market Value | Focus on ‘marketability’ or ‘salability’ |
| Wyoming | Fair Market Value | No |
