The Transferability Trap: Binary Thinking v. Nuance in Goodwill Valuation

Business litigation and family law partner Drew Soshnick authored an article for the Journal of American Academy of Matrimonial Lawyers titled “The Transferability Trap: Binary Thinking v. Nuance in Goodwill Valuation” that argues for a reevaluation of courts’ analysis in addressing the value of goodwill in divorce proceedings.

Soshnick notes that historically, divorce courts have viewed goodwill through a binary prism – categorized as either personal goodwill or enterprise goodwill – that fails to recognize that some personal goodwill can be transferred in some transactions. This binary framing, he argues, omits value that originated with individuals and later became pooled, protected, institutionalized, or saleable as part of an entity. Soshnick adds that a salability/marketability analysis best captures value that is economically salable while still excluding value that remains inseparable from future earning capacity, and that “changing the focus to the transferability of goodwill from simple category labeling allows for a more equitable asset division by divorce courts.”

“Courts would be well advised to adopt this higher level of scrutiny when reviewing the existence and allocation of goodwill in divorce cases rather than defaulting to the simplistic dichotomy between personal and enterprise goodwill,” Soshnick concludes. “Doing so provides a fundamentally different analytical lens, one that challenges how courts reconcile theoretical constructs with real-world transaction’s and leads to more accurate business valuations in divorce cases regardless of the applicable legal standard.”