In many marriages, one or both parties own a business. The valuation of a business during divorce is critical to a correct property division. In the case of Slater and Slater, Husband owned a chiropractic business, which he purchased in 1996. Part of the purchase price included $37,000 for “goodwill” and the prior owner’s patient list, and another $75,000 for the prior owner’s execution of a non-compete covenant. The revenues generated by this business were substantially higher than the national average for chiropractic businesses. One issue at the parties’ Oregon divorce trial by their lawyers was whether the business’ “goodwill” included the value of a non-compete covenant, even though Husband asserted he did not intend to sell the business.
The appellate court reviewed the case, and first defined “goodwill” as the value of a business over and above the value of its assets, irrespective of the owner’s continued personal services, personality, or reputation. In other words, where a business has no value beyond its assets unless the owner personally promises his/her services to accompany the sale of the business, there is no “goodwill.” The court held that the trial court erred, and held that a future covenant is not recognized in the marital property division, because the valuation of the business as a marital asset could not be predicated on the enhanced valuation of the business based on an assumption that Husband would be bound by a noncompetition covenant.
If you own a business, talk to one of our lawyers about how the Court may value the business.
Read the case, decided on 12/29/10.