In Sneed v. Johnston, the Supreme Court of North Carolina clarified a question in equitable apportionment of marital property: when is the goodwill of a professional practice subject to apportionment as marital property?

The husband formed a law firm during the marriage. An appraiser valued the firm at $3.1 million, attributing 10% of its goodwill to the enterprise and 90% to the husband. The trial court treated both components as marital property and awarded the wife half the firm’s value. The Supreme Court reversed as to personal goodwill.

Under N.C. Gen. Stat. § 50-20, a court must classify property, calculate the net value of marital and divisible property, and distribute it equitably. Property acquired between marriage and separation is presumed marital, subject to rebuttal by the greater weight of the evidence.

Goodwill means the expectation of continued patronage. But establishing it requires more than assigning a number to reputation. As established by prior NC case law, the existence and value of goodwill are questions of fact that should be established with expert testimony. No valuation formula controls; each case depends on its facts. Considerations include the practitioner’s age, health, and reputation; the nature and duration of the practice; past profits; comparative success; and other assets. Any method must measure present value from past results, not the professional spouse’s post-separation efforts. Courts must proceed cautiously because the award converts an uncertain intangible into dollars.

Courts are required to separate goodwill by two kinds.

Enterprise goodwill exists independently of the professional, attaches to the business, survives the owner’s departure, and can transfer to a willing buyer. That component may be treated as marital property. The Court left the trial court’s classification of enterprise goodwill intact, although it declined review because the issue was not preserved.

Personal goodwill is different. It reflects the individual’s reputation, knowledge, skill, and prospective earning capacity. Because it cannot be transferred, sold, or distributed apart from that person, it is not marital property subject to equitable distribution. Past income earned during marriage may still be marital, and future earning capacity may remain relevant to alimony. This kind of analysis prevents courts from disguising future earnings as a divisible asset.

Guy Vitetta, Charleston