When valuing a business in divorce cases, district courts must consider whether goodwill is institutional (divisible) or personal to one spouse (not divisible).

March 14, 2019

Marroquin v. Marroquin, 2019 UT App 38 (Filed March 14, 2019).

Prior to and during a 9 year marriage, Husband owned and operated a vending machine business. In the early years of the marriage, the Wife assisted in the business, but not in later years--her involvement was nominal. At trial, the value of the vending machine business became a central question in valuing the marital estate and distributing its assets. Both parties had experts testify as to the value and whether the business had "goodwill" and, if so, whether the goodwill was "institutional" or "personal" to Husband. The trail court found,

¶3 [Husband]managed and conducted all of [the] Vending’s business operations and had no other employees. He established personal relationships with the property owners, which allowed him to continue to operate his vending machines and micro-markets at their respective locations. Most of [the]Vending’s contracts are on a month-to-month basis and can be replaced by other vendors at any time after the monthly contract ends.

The Court of Appeals analysys looked like this: A. The Goodwill of [the] Vending [Business]:

¶14 [Wife] contends the district court “should have included goodwill value in its calculations” of the value of [the] Vending [business]. “In a divorce proceeding, determining and assigning values to marital property is a matter for the trial court and this court will not disturb those determinations absent a showing of clear abuse of discretion.” Dunn v. Dunn, 802 P.2d 1314, 1317 (Utah Ct. App. 1990) (quotation simplified). “Marital property is ordinarily all property acquired during marriage and it encompasses all of the assets of every nature possessed by the parties, whenever obtained and from whatever source derived.” Id. at 1317–18 (quotation simplified). Here, [Husband] does not dispute that [the]Vending is marital property subject to division. See id.

¶15 When valuing a business in marriage dissolution cases, district courts must consider whether goodwill is institutional or personal to one spouse. See Sorensen v. Sorensen, 839 P.2d 774, 775 (Utah 1992) (agreeing with “jurisdictions that do not treat goodwill as a marital asset to be divided”). Institutional, or enterprise, goodwill “is based on the intangible, but generally marketable, existence in a business of established relations with employees, customers and suppliers, and may include factors such as a business location, its name recognition and its business reputation.” See DeSalle v. Gentry, 818 N.E.2d 40, 47 (Ind. Ct. App. 2004). Personal goodwill is based on an individual’s “reputation for competency” and is not subject to distribution upon divorce. Sorensen, 839 P.2d at 775–76; see also Stonehocker v. Stonehocker, 2008 UT App 11, ¶ 44, 176 P.3d 476 (“There can be no good will in a business that is dependent for its existence upon the individual who conducts the enterprise and would vanish were the individual to die, retire or quit work.” (quotation simplified)).

¶16 Here, the district court concluded that the only goodwill associated with [the]Vending was personal to [Husband]. The court found that [the] Vending [business] was the type of sole proprietorship where the owner’s goodwill is not a marital asset subject to division. Accordingly, the court did not consider [Husband's] personal goodwill in calculating the value of [the] Vending [business].

The court then addressed and reviewed two other "goodwill" cases: (1) Sorensen (a sole-practitioner dental practice where the court found proper to not include personal goodwill because it is just a reputation for competency and where no actual sale of the business is taking place); and (2) Stonehocker (a sole proprietor car dealership, and the dealership was “in reality a sole proprietorship” and the success of the used car dealership was “solely attributable to [the husband’s] personal, professional reputation.”

The court ultimately ruled that the personal good will of the Husband in this vending business asset was properly excluded from the business' value:

¶20 Here [Husband] owns 99% of [the]Vending [business] and is the only employee of the business. He remains in contact with the entities that continue to allow [the] Vending [business] to operate vending machines and micro-markets on the properties on a month-to-month basis. [Wife's] involvement in the business was minimal and limited to stocking the machines and counting the money at the beginning of the marriage. Thus, [Husband] is akin to the sole proprietor in Stonehocker and [Wife] had “only token involvement” in [the] Vending [business]’s operations. See id. ¶¶ 40–41 (quotation simplified).

Marroquin v. Marroquin, 2019 UT App 38 (Filed March 14, 2019).

To read entire case, Click HERE.

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