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It is clear that the fair market value (FMV) standard takes into account non-owner personal goodwill as well as owner personal goodwill. However, in many situations, especially in Divorce, this point is often overlooked. In many cases there could be personal goodwill related to employees or other individuals that also must be taken into account in determining the fair market value of the business.
Join experts Jim Alerding and Josh Shilts as they review personal versus entity goodwill issues and discuss the current state statutes, relevant case law, and examples. They will also review other personal versus entity goodwill issues, such as transferrable versus non-transferrable goodwill and methods of determining the breakdown of total goodwill into its components.
Program Agenda
Introduction to Goodwill in Valuation
Overview of personal vs. entity goodwill
Importance of considering both owner and non-owner personal goodwill
Legal and Statutory Framework
Current state statutes and relevant case law
How legal precedents impact the valuation of personal goodwill
Goodwill Breakdown and Analysis
Differentiating between Pure Personal, Tradable Personal, and Enterprise Goodwill
Methods for determining the breakdown of goodwill components
Case Studies and Practical Applications
Examination of personal versus entity goodwill in specific cases: Insurance Agency, Independent Contractor
Insurance Agency: We were asked by a client bank to do due diligence on a property casualty insurance agency being acquired by the bank. The first question I asked was whether or not the agents had executed enforceable covenants not to compete. The answer for the over 100 agents of the agency was no. Since those agents were free to send agent of record letters to their clients and walk away with them, the entire value of the agency was tied up in these “free agents.” The bank walked away from the deal.
Independent Contractor: For an estate trial we valued a business that repaired railroad locomotives for Amtrak. 95% of the revenues for this business were from Amtrak and all of those revenues were the result of the relationship that a certain individual had with Amtrak. This individual also had a great relationship with the owner (decedent) of the business. He acted as an independent contractor in using his contacts with Amtrak to send their repair business to the business owned by the decedent. Without the Amtrak contact person the business had virtually no value.
Practical insights and implications for valuation in Divorce and other scenarios
Learning Objectives
Explicating personal goodwill between the litigant and others;
Including analysis of Goodwill among Pure Personal vs. Tradable Personal vs. Enterprise
Analyzing the transfer of marketable personal goodwill
Case Studies – Insurance Agency, Independent Contractor
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