How Does Goodwill Factor into Business Valuations for a Divorce?
Mar 31, 2026 | Written by: | Share
During a divorce, determining and distributing the value of a business[1] may require a formal valuation and report, usually prepared by a forensic accountant. The accountant can represent both parties, or each side may employ a different expert, which can eventually lead to additional complications[2].
There are multiple factors to be considered when preparing a valuation report. For example, was the business started before the marriage? Do you require multiple values as of certain dates, such as the date of the marriage and then the date of the divorce, to see if the business value increased (or decreased) during the marriage? Also, is a spouse entitled to one half as equitable distribution, or a lesser percentage? Was the spouse involved in the business or did his/her contributions in other facets allow the business spouse to otherwise increase the value of the business?
A business valuation typically includes a thorough inspection of the business site and records. The analysis will include a valuation of enterprise and personal “goodwill,” in addition to dollar value. Goodwill is that part of a business’s value that comes from intangible things like reputation. “Personal” goodwill requires the presence of a specific individual. “Enterprise” goodwill is associated with the business in general. Goodwill is not tangible, but it can greatly affect a business’s worth.
Recently, the New Jersey Appellate Division addressed this issue of “goodwill” in an unpublished opinion: Slutsky. It is notable that this case started in 2008, and through protracted litigation and millions of dollars in legal and expert fees, it is still ongoing 18 years later, which should be a cautionary tale to all readers.
In this case, the defendant Kenneth J. Slutsky appealed the May 31, 2024 Family Part order valuing his interest in a New Jersey law firm and awarding plaintiff Nancy G. Slutsky fifty percent of the determined value. He also appealed the November 18, 2024 order requiring him to pay the plaintiff $487,041.15 in counsel fees. The Appellate Division affirmed the trial court’s decision (upheld).
“Relevant to this appeal, we reversed in part the first judge's May 30, 2014 final judgment and subsequent July 28, 2014 order. Specifically, we reversed and remanded for a new judge to address the valuation of defendant's TCA (Termination Credit Account), "We note there is a numerical discrepancy in the record regarding the goodwill valuation. Because the parties do not raise the issue, we have included the value used in the first judge's order, evaluation of the goodwill attached to defendant's interest in his law firm, as well as [plaintiff's] percentage interest in this asset," the equitable distribution of defendant's IRAs, and "the award of counsel fees" to plaintiff. We vacated the final judgment provisions that "fix[ed] the value" of the TCA and goodwill "and distribut[ed] defendant's interest in the firm" because there were insufficient factual findings. We remanded for an "analysis" and factual findings "necessary to resolve the complex question of value" and equitable distribution. We directed another judge (second judge), to conduct a "valu[ation] of defendant's interest in his firm" and an "analysis [of] . . . plaintiff's interest in the asset" consistent with our opinion. Because we vacated multiple final judgment provisions and there were lingering questions surrounding the amount of the attorneys' fees, we directed the second judge to reconsider the award of attorneys' fees.”
After determining the defendant's Termination Credit Account (TCA) value, the second judge found the defendant's goodwill value was $501,547.20. In addition to acknowledging the legal precedent and factors applicable to the valuation of the defendant's interest in the firm, the second judge recognized he was tasked with reviewing the defendant's "accumulated . . . individual [goodwill] during his multidecade career at the firm." He considered the defendant's overall reputation related to repeat patronage, "status as an equity partner" that provided him "special allocations" and "share[d] . . . profits," and actual compensation compared to the reasonable compensation of similarly situated attorneys. The second judge found a "significant[]" excess of actual compensation, which was valued at $896,286 using a five-year review from 2002 to 2007.
Goodwill is not a tangible asset but "is 'essentially [a] reputation that will probably generate future business'" and "encompasses the 'advantages of an established business that contribute to its profitability,' such as a good name, capable staff, and a reputation for superior services." Further, "'[g]oodwill can be translated into prospective earnings.'"[3]
The application of an accepted goodwill valuation methodology is "accomplished by fixing the amount by which the attorney's earnings exceed that which would have been earned as an employee by a person with similar qualifications of education, experience[,] and capability." The "actual average" is determined using the compensation "before federal and state income taxes." "If the attorney's actual average realistically exceeds the total of (1) the employee norm and (2) a return on the investment in the physical assets, the excess would be the basis for evaluating goodwill."
The issues of business valuations, compensation, and goodwill can be complex and extraordinarily fact-sensitive. The Slutsky case is an excellent reference source for review when addressing goodwill and its calculation in a divorce.
[1] In New Jersey, there are three generally accepted approaches to determining a business’s value.
- Income/Capitalization: The income/capitalization approach to valuating a business compares the income a business provides its owner(s) and the business’s expected future performance. From this comparison, the method anticipates future profits, which are used to determine the business’s value.
- Market: The market approach to business valuation determines a business’s value by comparing and aligning it with similar businesses or assets that have recently been sold on the market.
- Cost: The cost approach to business valuation considers how much it would cost to develop and run the business as it is. Then, a cost approach valuates the business based on the sum of the development and maintenance costs.
[2] A trial court is free to accept or reject the testimony of either side's expert[] and need not adopt the opinion of either expert in its entirety." Brown v. Brown, 348 N.J. Super. 466, 478 (App. Div. 2002).
[3] Slutsky, 451 N.J. Super. at 359-60 (quoting Dugan v. Dugan, 92 N.J. 423, 431 (1983)).
Diana N. Fredericks, Esq., devotes her practice solely to family law matters. She is a Certified Matrimonial Law Attorney and was named to the NJ Super Lawyers Rising Stars list in the practice of family law by Thomson Reuters from 2015 through 2021, to the NJ Super Lawyers list in 2023, 2024, 2025, and 2026, and to the New Leaders of the Bar list by the New Jersey Law Journal in 2015. Contact Diana for a consultation at 908-735-5161 or via email.
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Any statements made herein are solely for informational purposes only and should not be relied upon or construed as legal advice.