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Division of business interests during divorce

On Behalf of | Jan 14, 2020 | high asset divorce | 0 comments

Not all aspects of the business are included in the marital estate in Pennsylvania, and therefore not all aspects of the business can be divided. As part of a divorce in Pennsylvania, the courts recognize two different concepts of value that exist with regard to a business.

One of those concepts is known as personal goodwill. According to the Corporate Finance Institute, personal goodwill is something that travels with the individual who owns or operates the business. The other aspect of business value is known as enterprise goodwill, and that enterprise goodwill is transferrable between business owners. Think of two different examples. For instance, think about Bob’s auto repair shop and everyone takes their car to Bob because people trust Bob. When Bob stops operating that business, the value of the business is likely to go down because Bob is not there any longer. That is known as personal goodwill. That personal goodwill is not transferrable or divisible in divorce in Pennsylvania.

Think of a different kind of business, like a subway sandwich restaurant. According to Gross Mendelsohn, the other instance is known as enterprise goodwill. People are coming to that business, not because they know Bob behind the counter who makes the sandwich but they are coming to that business because they know the subway name. They know that no matter where they go, every subway restaurant is going to produce the same kinds of sandwiches. That business has value in and of itself because of the subway name and the branding that is done on behalf of subway restaurant owners. Enterprise goodwill, like the subway sandwich shop, is definitely divisible during divorce in Pennsylvania.