In many situations, most notably valuation for marital dissolution and allocation of purchase price for tax or financial reporting purposes, distinguishing personal goodwill from enterprise goodwill and other enterprise-level intangible assets is a critical undertaking.

In the marital arena, personal goodwill is not a divisible asset in some jurisdictions – and the status is uncertain in many - and therefore cannot be awarded by the Court.  It is curious that many valuation analysts fail to provide evidence as to the separate values of personal and enterprise goodwill. 

In tax planning, particularly for C Corporation asset sales or conversions to S Status, allocating the proceeds of a sale of a business to personal goodwill and/or a noncompete agreement, consistent with the Tax Court decisions in Norwalk and Martin Ice Cream, can reduce the amount recognized as corporate gain and the related corporate level tax.  In valuation for purposes of a sale of a business, properly attributing value to different intangible assets is critical to both buyer and seller obtaining the proper measure of the bargain. 

There are two fundamental issues in differentiating personal from enterprise goodwill: identifying which portions of cashflow are attributable directly to the individual’s characteristics and identifying which cashflows attributable to otherwise enterprise-level tangibles and intangibles would be lost if the individual competed.  

We have a comprehensive approach to these issues that was the subject of a paper written by Mark O. Dietrich, CPA/ABV in the AICPA’s Spring 2005 CPA Expert and was presented at a number of seminars and Conferences during 2005, including the joint AICPA/ASA National Business Valuation Conference in November and the Virginia Society of CPAs Business Valuation Conference in September.  Mark also developed a one-day continuing education course on how to distinguish personal and enterprise goodwill.