As I have addressed several times, inclusion of goodwill in marital assets vary from state to state. The majority of states include entity or practice goodwill and exclude personal or professional goodwill from divisible marital assets. A minority of states include or exclude all goodwill, while a smaller number currently has no precedent.
As I discussed recently, within the last year the Wisconsin Appellate and Supreme Courts returned a ground-breaking decision in McReath v. McReath. This case involves the valuation of a dental practice. The Court coined a new definition - saleable goodwill. Saleable goodwill is the amount of professional and / or practice goodwill that can be transferred to a buyer. Generally, saleable professional goodwill is substantiated by the presence of a reasonable and enforceable covenant not to compete. This seems reasonable enough because no intelligent person is going to pay for anything beyond tangible net assets absent a covenant not to compete.
However, the Court did not stop there. The Court went on to rule that it was not "double-dipping" to award periodic payments supported by excess income generated by goodwill and to include that goodwill in marital assets. The court reasoned that an income-producing asset has intrinsic value beyond the cash flow it generates to its owner. What?! You cannot be serious!! This is wholly illogical Mr. Spock!
An asset is defined as something that has the capability of providing income, cash flow, or benefit in the future. Regardless of what we are valuing, an asset is only worth the present value of its future cash flows. Period. End of discussion. As my grandmother used to tell me, "You cannot have your cake and eat it, too." If you strip away all the future cash flow, what ever income-producing asset you hold is, well, worthless. The Court whiffed badly here. Actually, probably worse than that. I think this went OB and they are hitting 3 on the tee.
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