We use the term “goodwill” to identify the intangible but valuable asset of a business arising from its reputation and customer relationships. The words “reputation” and “relationships” can reference something personal and individual in nature as well as something belonging to a corporation or other separate legal enterprise. In the most general sense, is the customer choosing to do business with the person or the separate legal entity or both? Answering this question tells where and to what extent we should allocate the value of the reputation and relationships among the individual versus the enterprise.
Goodwill is often allocated between personal versus enterprise for marital property valuation. Understanding the methods of allocation assists in understanding valuations performed for other purposes. Goodwill must be transferable to be included as part of the fair market value of a business, as a hypothetical buyer would be unwilling to pay for goodwill from which it cannot benefit. Accordingly, all valuation estimates must consider whether it is transferable.
