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How is Goodwill Counted?

Goodwill arises when the business is worth more than the tangible assets.

Things such as reputation, a desirable location, a unique product, and so on, can all-but-guarantee an earnings stream, and so make the business have more value than simply its tangible assets.

The idea is that business goodwill is an asset of the business that can be divided between the spouses in the divorce.

Probably every state today accepts that business goodwill exists.

The question then becomes: what is the goodwill worth?

If the business is a legal, medical, architectural, etc. practice, the question is: how do we distinguish business goodwill from simple expected future revenue? Typically, the expected future revenue has been already taken into account in the alimony or property settlement discussions. If the same income stream is now labeled "business goodwill" and a portion awarded to the other spouse, then the non-working spouse would have "double-dipped." That is, the non-working spouse would have been awarded cash twice from the same asset.

There is no generally-recognized formula or theory for making this distinction, and court decisions vary widely.

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