Valuations Case Report: Personal Goodwill Versus Corporate Goodwill in a Marital Dissolution
This highlighted Business Valuation Resources case report explores the difference between corporate goodwill and personal goodwill as it pertains to a divorce case in Louisiana. The state’s law stipulates that personal goodwill is not included in the marital estate, but corporate goodwill is included.
In this case, the husband was the sole employee of an insurance adjustment business. He claimed that it was a professional service. In Louisiana, any professional service (practicing law, providing healthcare, etc.) is automatically assumed to only have personal goodwill. Thus, his wife would not be entitled to any “value” of the business in the marital estate.
Despite the husband being the only employee (which almost always leads to the court assuming it is all personal goodwill), the wife presented a valuation expert that valued the business and proved to the court that the value of the business was $253,000 because “the business produced profits in excess of what the market would pay for the husband’s services.” This is the most important statement in the attachments.
The appraiser proved that “corporate goodwill” must exist. The court agreed with her conclusion.
Further, the husband was hurt because he did not provide his own valuation expert to dispute her conclusion. His only expert witness was his CPA, who testified that “all the profits of the business were the result of the husband’s efforts.” This may be true. However, the CPA was not a valuation expert, and was not proffered as an expert. In the court’s view, the appraiser was the only expert witness.
The key takeaway is that corporate goodwill can exist in businesses even with only one employee. However, in cases of dispute, if you don’t hire a valuation expert you will likely lose.
If you require the perspective of a valuation services professional, we’d love to discuss how KSM can help. Please contact a member of our team or complete this form.
Louisiana Appeals Court Affirms Trial Court That Husband’s Business Is Not a Professional Business and Has Value Other Than Personal Goodwill of Husband
Thomasee v. Thomasee, 2022 La. App. LEXIS 1765; 22-159 (La.App.3 Cir. 10/12/22); 2022 WL 6876111
The Louisiana appellate court affirmed the decision of the Trial Court in a divorce case that included the value of the husband’s business in the marital estate as community property. The husband argued that the FEMA adjuster business is a professional business and that the profits are all goodwill and, therefore, not included in the estate. The wife argued that the business was not a professional business and had value other than just the personal goodwill of the husband. The value was includable as community property, and any subsequent income was half hers. The trial court sided with the wife, and the appeals court affirmed.
Issues. The appellate court was asked to determine whether the husband’s business, Thomas Adjusters, had value other than the personal goodwill of Jason and whether subsequent income was half hers.
Facts and procedural history. Angela and Jason Thomasee were married in 1983 and divorced in 2009. Jason was a FEMA-certified flood insurance adjuster and sole employee of Thomasee Adjusters. At trial, the husband alleged that Thomasee Adjusters had no value that was part of the community property and that any post-termination profits and losses were his separate property. Angela alleged that Thomasee Adjusters had a value of $253,000 and that she, as one-half owner of the business, was entitled to one-half of the profits and losses occurring since the termination of the community. The husband was ordered to pay half of the value as an equalization payment.
The husband appealed the value, inclusion in the community, and the issue of the subsequent profits and losses. The appellate court affirmed the trial court on all issues.
Law and discussion. In Louisiana, any personal goodwill is excluded from the value of a business in a partition of the community. The excess value of a business “beyond the buildings, inventory and contracts is goodwill.” With a professional corporation, the personal goodwill was not included in the community. The husband argued that any money Thomasee Adjusters made since the termination community was due to his sole efforts as a professional (i.e., a FEMA-certified insurance adjuster) and his relationship with a single client. The husband testified that, without him, there was no Thomasee Adjusters but admitted someone with the same certification could take over the business “if they paid me.” Blaine Hebert, CPA, who prepared returns for Thomasee Adjusters, testified that all the profits and losses of Thomasee were due solely to the efforts of the husband. Hebert was not proffered as an expert.
Vanessa Brown Claiborne, CPA and Business Valuation Expert, testified that Thomasee Adjusters had a value of $253,000, using comparable sales of other insurance adjusting businesses as a valuation methodology. She disagreed with the husband’s argument because the business produced profits in excess of what the market would pay for the husband’s services. Angela argued that Claiborne was the only expert opinion offered as to the value and that the FEMA certification cannot be compared to a professional degree such as an attorney, etc. and “there was no testimony that any purchaser of Thomasee Adjusters could not continue the relationship with its only client.”
“The trier of fact is free to accept or reject in whole or in part the testimony of any witness.” (Com. Flooring & Mini Blinds, Inc. v. Edenfield). Claiborne’s testimony as to the value was uncontradicted. The appellate court found no reason to reverse the decision of the trial court as to the $253,000 value and thus affirmed the trial court. Also, “[b]ased on applicable law, we find no error in the trial court’s ruling that the profits and losses of Thomasee Adjusters belong to Angela and Jason equally.”
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