The Important Distinction between Personal & Enterprise Goodwill

The Important Distinction between Personal & Enterprise Goodwill

In the Family Law jurisdiction, a fair degree of discussion centres on “personal goodwill”. This follows from the decision of the Full Court of the Family Court of Australia in the matter of Wall and Wall which contained an important clarification of the application of the “value to the owner” approach widely adopted by the Family Court, and consideration of the potential double counting of a party’s business profit as both property and a financial resource. The upshot of Wall and Wall is that in property proceedings in the Family Court, “personal goodwill” is considered to be a financial resource, not property. The existence of personal goodwill should only affect the split of the pool, but not the pool itself.

Despite the time that has elapsed since Wall and Wall and the material affect that the proper classification of goodwill might have on the outcome of a property dispute, the issue is very poorly considered by “expert” valuers. Whilst it is not necessarily an easy issue, in many instances it is completely ignored, resulting in an erroneous or inequitable outcome if the “error” goes undetected.
The proper identification of personal goodwill is not only relevant in the Family Law jurisdiction, with commercial business sale transactions, partnership / shareholder disputes, and various other matters requiring the division of goodwill into its various components. Furthermore, the issue is not limited to professional practices, with any business potentially having a personal goodwill component.

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Personal Goodwill and Misapplication of Value to the Owner