If you are an owner of a financial advisory firm and going through a divorce be sure to determine which layer the income stream from your business will be included in for determining your property division; should it be included within the marital estate, the value of the business, both or neither? 

To set the foundation, you may have engaged a business valuation firm to assign a value to your financial advisory firm. Questions that immediately arise in this context and will directly impact your future alimony payments are:

  1. Is the value of the firm primarily personal goodwill or enterprise goodwill? 
  2. How do you address the issue around assigning goodwill in context to paying alimony in the future? 
  3. Should the value of the firm be reflected as a marital asset within your marital estate?
  4. What methodology was used by the valuation analyst?
  5. Does the methodology help or hurt you in your divorce?
  6. What information was used to derive the value?

If you are an independent financial advisory firm that participates within a larger marketing umbrella or are completely independent, you may have 100% personal goodwill and may have limited to no enterprise goodwill. Personal goodwill means the business is primarily about you and the reputation you have built up over the years. If you have clients who have moved from firm to firm with you, across separate umbrella entity platforms, then the value of your business likely represents personal goodwill. 

Enterprise goodwill means you have built up credibility in the marketplace where you can acquire new business simply by marketing your brand. Clients call and you personally do not have to sell the clients on your unique value proposition or perform the work. Most owners of financial advisory firms are not in this position. They cannot simply leave the firm and let it run by itself. It takes many years, systems, processes and dependable people to make this happen. As a result, many financial advisory firms have personal goodwill associated to their business value. 

Personal goodwill may be preferred in some instances, yet not in others. Certain states do not recognize personal goodwill as a marital asset which can play in your favor. Yet, it also may hurt you at the same time.

There are one of two layers in which the income stream should be reflected in a divorce. The first potential layer is the business. The second is the marital estate. Deciding which one your income stream needs to be included within can be a tricky question to resolve. It all depends on your situation. Yet, there is one issue that is very clear for most people. If you have captured the income in both the business layer and the marital estate you have accidentally experienced what is referred to as “double dipping”. You want to avoid double dipping, otherwise you are paying your spouse twice for your income and will experience significant destruction of private wealth during your divorce process. 

Figuring out where the income needs to reside and how to best position this matter is a very important strategic decision in your divorce proceeding. The questions that arise are:

  1. Should the income stream be included within your marital estate? If so, why?
  2. Should the income stream be incorporated into the value of your business? If so, why?
  3. How might this income stream impact your alimony calculations and child support obligations?
  4. How should you address these issues to optimize your future wealth position and minimize your wealth at risk?

The answers to these questions are situationally dependent and should be answered in context to the handling of the entire marital estate. One issue that rises to the top that must be incorporated into your strategic thinking, is the period of time you may be required to pay alimony to your spouse compared to the payback period embedded in the business valuation calculation. This period of time appears on the surface as inconsequential, yet the repercussions could be detrimental to your future wealth. This is an important issue to address as you are striving to mitigate your financial risks in your divorce process. If the timeline for the alimony calculation is longer than the payback period (from a third party buyer’s perspective which needs to be applied to the value of the business) then you may decide to have the income included within the value of your business as a marital asset. If the issue is the other way around, then you may want to have the income included within your marital estate as it may be financially beneficial for you to take this approach. You may be able to shave off years of paying alimony through this process.

These issues need to be handled sensitively. Many times, there are interdependent variables where the decision cannot be made in isolation. You have to uncover the tradable components to know which levers to pull and which to leave intact as you proceed through your divorce negotiation. 

About the Author

Larry Smith is a Founding Partner of Divorce Outcomes, a specialized professional services firm that manages all of the financial aspects in a divorce process. Since 2003 he has worked as a trusted financial advisor, financial advocate, divorce architect and technical financial expert; he is not an attorney. He is an alumni of KPMG and Andersen with expertise in technical accounting, forensics, sophisticated taxation, management consulting, risk management, advanced process engineering, business combinations, divorce management, multi-party negotiations, advanced quality analytics and cognitive performance technologies. Since 1986 Larry has been advising individuals and organizations about innovative financial solutions to resolve complex financial challenges that arise in life and in business.

For both personal and business divorces, Larry is considered an expert in divorce strategies, divorce process management, financial divorce architecture, financial risk management, taxation for divorces, financial divorce forensics, advanced divorce analytics, financial divorce negotiations and mediation, business valuations and sophisticated equity structures. He helps clients shape complex financial decisions, manage communication risks and ever-changing negotiating positions to strategically preserve or grow wealth from these types of transactions.

If You Have a Question

If you have a question, feel free to contact me at [email protected] or 617-680-5222. The call is free. I will spend 30–60 minutes with you. I will provide you an honest assessment as to where I think you are positioned in your divorce process or answer any questions you have. I may provide you some guidance, insight or advice that you can take with you as you wish. There is no obligation to move forward. The phone call is designed to ease your fears, provide you some options to pursue and a potential road to run on that can lead you down a path to achieve a successful outcome.

About Divorce Outcomes

Divorce Outcomes is a specialty services firm that helps people both domestically and internationally manage all of the financial decisions that arise in their divorce process. We are not attorneys. We are financial experts who partner with our clients as their personal financial advocates. We help our clients manage their divorce process, uncover hidden financial risks, architect divorce solutions, manage ever-changing negotiating positions, communicate complex financial matters and close the divorce process as soon as possible with a goal to arrive at the best outcomes possible. Throughout the process we evaluate the current state of our clients’ financial lives with an objective to best reposition their future. We do not sell any products. We simply raise issues that are in our clients best interest. Our clients share with us we:

  • unfold, analyze and repackage their financial life so they are well positioned after their divorce
  • preserve the value of their business or marital estate
  • continuously strive to provide a return on our services
  • build balanced financial solutions grounded in evidence
  • find ways to make our client, and at times both parties, money through the process
  • design their divorce to work for them and their family’s life
  • provide mental clarity to make decisions
  • reduce the total process time from start to close
  • minimize the stress and unpleasant memories that can last a lifetime

As we reach an agreed upon settlement structure, we help our clients identify a fitting attorney who can leverage the financial solution to draft and record the requisite legal documents. Where outcomes are at risk from a traditional process, we function as expert financial negotiators or financial mediators to turn around the situation and achieve our client’s desired outcomes.

Learn more about us at divorceoutcomes.com or review our blogs to gain a clearer understanding about our approach and how we maximize the financial outcomes for our clients.


This communication is for general informational purposes only which may or may not reflect the most current developments. It is not intended to constitute formal advice or a recommended course of action as every person’s situation is unique and different. The information here is not intended to be, and should not be, relied upon by the recipient to make a decision without professional guidance.


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