What business owners, family law attorneys, and valuation professionals need to know about the landmark decision in Sneed v. Johnston.
The North Carolina Supreme Court has issued a significant ruling that will reshape the way professional practices are valued in equitable distribution cases. In Sneed v. Johnston1, decided August 14, 2026, the Court held that “the personal goodwill of a professional practice does not qualify as marital property for equitable distribution purposes”.
This decision aligns the state’s treatment of personal goodwill with the majority of jurisdictions that distinguish between personal and enterprise goodwill. To understand the impact and importance of this ruling, we’ll define goodwill, how to distinguish between personal and enterprise, and how this ultimately will impact equitable distribution valuations in North Carolina going forward.
What Happened in Sneed?
The case involved a law firm owned by one spouse. A court-appointed valuation expert concluded that approximately 90% of the firm’s goodwill was personal goodwill and only 10% was enterprise goodwill. The trial court treated both categories as marital property and awarded the other spouse half of the total value. This was upheld in the Court of Appeals, but the Supreme Court disagreed.
After reviewing authority from other states and the NC state statutes defining “separate property”, the Court concluded that personal goodwill should not be treated as marital property. The Court reasoned that personal goodwill is inherently tied to the individual practitioner and lacks the ability to be distributed in the same way as other marital assets, stating,
“Nonetheless, we think it obvious that personal goodwill cannot qualify as marital property under the equitable distribution statute. The statute assumes that all such property possesses an attribute that personal goodwill unquestionably lacks: the capacity to be distributed.”
The Court also noted and emphasized that the decision applies only to equitable distribution proceedings and is not to affect laws already in place regarding consideration of earnings potential in alimony determinations.
What Is Goodwill?
Goodwill is an intangible asset defined in the International Glossary of Business Valuation Terms as “that intangible asset arising as a result of name, reputation, customer loyalty, location, products, and similar factors not separately identified.”
In many professional practices, goodwill can represent a substantial portion of total value. Law firms, medical practices, dental practices, accounting firms, consulting businesses, and other service-based companies frequently derive much of their value from intangible assets rather than equipment or real estate.
The challenge has always been determining whether that goodwill belongs to the business itself (enterprise) or to the individual professional (personal).
Personal Goodwill vs. Enterprise Goodwill
A central feature of the Court’s opinion is its adoption of the distinction between two different forms of goodwill.
Enterprise goodwill is primarily associated with the entity, while personal goodwill is primarily associated with the individual.
The existence of personal goodwill is based on the fact that clients seek out the individual, as opposed to the firm. An individual might be sought out based on their skills, knowledge, and reputation, among other factors. Personal goodwill is much more difficult to transfer, but not always impossible.
Enterprise goodwill shows up in brand recognition, referrals to the firm (as opposed to an individual), multiple locations or service providers, and overall an ability of the firm to continue operations independent of a professional’s involvement.
How Is Personal Goodwill Separated?
The Supreme Court did not prescribe a specific methodology for separating personal and enterprise goodwill. The Court reiterated that goodwill valuation remains a fact-specific exercise that often requires expert testimony. Although no empirical studies exist to provide a baseline, and there is no one set method to divide personal and enterprise goodwill, experts will generally evaluate a series of qualitative and quantitative factors to help identify personal or enterprise goodwill attributes, including:
- Strength of the company’s brand
- Professional’s earning power and reputation
- Transferability of customer relationships
- Dependence on owner-generated referrals
- Existence of employment or non-compete agreements
- Nature of the industry
A valuation professional will attempt to quantify these factors, and there are a number of approaches that are commonly considered or utilized.
- With-and-Without Analysis – This approach evaluates the business as it currently exists and compares it to a hypothetical scenario in which the key individual is removed.
- Multi-Attribute Analysis (MUM) – This method divides attributes into those that indicate either personal or enterprise goodwill, then uses relative weights to assign a percentage of total goodwill to each.
- Market-Based Evidence – Actual transactions can provide meaningful insights. If buyers in a particular industry routinely require sellers to remain after closing, enter employment agreements, or sign restrictive covenants, that may suggest a meaningful personal goodwill component.
- Excess Earnings and Goodwill Allocation Models – Certain valuation methodologies first identify overall goodwill and then apportion the indicated value between enterprise and personal components based on the facts and economics of the specific engagement.
No single method is universally accepted, and different fact patterns may justify different approaches.
Why This Matters
This decision will have a profound impact on many divorce-related business valuations.
For years, North Carolina courts declined to distinguish personal and enterprise goodwill in equitable distribution, as set out in Poore v. Poore (1985). In the Sneed case, the Court of Appeals upheld the Trial Court’s decision, stating “our courts have consistently declined” to divide goodwill into categories. The NC Supreme Court deviated from this and joined “the ranks of those state appellate courts which have distinguished enterprise goodwill from personal goodwill and have held that the personal goodwill of a professional practice cannot be treated as marital property.”
For professional practices where success is heavily dependent on the owner, the exclusion of personal goodwill may substantially reduce the divisible value of the business. In some cases, personal goodwill may constitute not only the majority of the overall goodwill value, but the majority of the total business value.
This creates both opportunities and challenges.
Business owners and family law attorneys seeking a business valuation for equitable distribution purposes in North Carolina can now anticipate an increased focus on goodwill allocation. Valuation analysts may increasingly inquire about client retention, referral relationships, non-compete agreements, and transferability of earnings. Parties should understand that the value of the business and the marital value may not be synonymous. A highly profitable practice may have little enterprise goodwill and therefore marital estate value if revenues are highly dependent on the owner’s personal efforts and reputation.
Final Thoughts
The significance of Sneed v. Johnston will likely influence the valuation of not only law firms, but medical practices, dental practices, accounting firms, engineering firms, consulting businesses, and other professional service organizations throughout North Carolina.
By recognizing the distinction between enterprise goodwill and personal goodwill, the Court has aligned North Carolina with many other states view of goodwill and reinforced a fundamental valuation principle: a business can only transfer what a buyer can actually acquire.
Going forward, the ability to identify, measure, and support a personal goodwill allocation will become a critical component of many equitable distribution valuation engagements.
Sara Maddox, ASA, ABV, CVA, EA
Sara Maddox is a Senior Manager and Director at DMJPS CPAs + Advisors in Business Valuations. At DMJPS, her work includes valuing business enterprises using fundamental and complex analysis for purposes of succession planning, gift and estate tax, mergers & acquisitions, litigation matters, and shareholder buyouts. She works with a variety of industries, including retail/wholesale, real estate and construction, professional and personal services, and manufacturing.