Equitable Distribution Case Involving Law Firm Goodwill Goes to North Carolina Supreme Court

Some the thorniest issues relating to property division in North Carolina divorces involve the disposition of a business asset owned by one spouse. Professional practices such as doctor’s offices and law firms are particularly tricky because most of their value is not tied to tangible property, but the reputation of those who work there. A case now before the state’s Supreme Court relates to different types of business goodwill and how they are valued during an equitable distribution analysis.

In Sneed v. Johnston, a couple was married for approximately 20 years. During that time, the husband, Jason Sneed, opened a law firm. Approximately four years after the founding of Sneed, PLLC, Jason and his wife, Charity Johnston, separated, and finalized their divorce one year later.

Generally, all assets acquired between the date a couple was wed and when they separated is considered divisible marital property. Given that the law firm fit this description, its value was subject to distribution among the parties. In 2019, three years after the divorce, the parties consented to retain an appraiser who subsequently set the firm’s worth at slightly above $3 million. Approximately 90 percent of this amount was classified as personal goodwill, which is value that would not be associated with the business if Sneed left. The other 10 percent was attributed to enterprise goodwill, which has value regardless of Sneed’s presence at the firm. Jason Sneed refused to pay his share of the appraiser’s fee and did not respond to inquiries related to the appraisal.

The court accepted the appraiser’s amount and ordered Sneed to pay $1.55 million to Johnston. He refused, stating that only the enterprise goodwill, should be considered marital property, not the personal goodwill he brought to the firm. In its decision, the North Carolina Court of Appeals rejected any distinction between enterprise and personal goodwill in an equitable distribution proceeding. Practically, that means a professional’s practice, client relationships, referral networks and the intangible reputation that generates future revenue can translate into a divisible financial interest. Sneed is now appealing the case to the Supreme Court of North Carolina.

Valuations of business goodwill for attorneys and other professionals can be critical in a contested divorce case. The Moore Law Office, PLLC in Asheville advises North Carolina parents on complex equitable distribution issues and other family law matters. Contact us by calling 828-258-8053 or use our online form to set an initial consultation.