North Carolina law states that it is presumed that all property acquired between the date of marriage and separation is considered marital property, which includes business interests. When determining the value of businesses, goodwill is often a component of the valuation. This includes intangible assets like brand reputation, intellectual property, customer relationships, and future earning potential. While goodwill is challenging to quantify, it does have value and marketability.
Sneed v. Johnson
In the case of Sneed v. Johnson, Sneed appealed from an equitable distribution order that awarded his ex-wife, Johnston, a distributive award of half the value of his law firm, which equaled over $1.5 million. The order also required Sneed to reimburse Johnston for the costs of the business appraiser.
Background of Sneed v. Johnston
The parties married in 1996, separated in 2015, and divorced in 2016. While they were married, Sneed started a law firm, the value of which was appraised as of the date of separation at a little over $3 million.
The appraiser attempted to contact Sneed numerous times to get his assistance in valuating the firm and to obtain financial documentation. However, Sneed ignored the appraiser’s attempts at contact, refused to send him documentation, and failed to pay his portion of the appraisal fee.
Appraiser’s testimony
The appraiser testified at a hearing in December 2021, stating the value of the firm and detailing the goodwill value, which was 10% attributable to the firm and 90% to Sneed. The trial court accepted the appraiser’s valuation of $3.1 million and ordered Sneed to pay Johnston one-half of the value over the course of 15 years in monthly installments of $8,611.11. Sneed was also ordered to reimburse Johnston for the portion of the appraisal fee he failed to pay, which totaled $8,520.64.
Sneed filed motions to strike the appraiser’s testimony and to reopen evidence, both of which the court denied. He appealed this denial and the court’s equitable distribution order.
Sneed v. Johnston Court of Appeals Case
One issue in the appeal case was the valuation of Sneed’s law firm. The appellate court stated that goodwill is among the components which can be used to valuate a business. However, the court further noted that valuing goodwill should be done with great care, and valuations should clearly indicate the evidence on which the valuation was based.
Sneed argued that the trial court erred by allowing the appraiser to testify and by finding his calculations to be credible. The Court of Appeals referenced Sneed’s multiple refusals to cooperate with the appraisal and his violations of court orders, which caused significant delays and obstacles for the appraiser. The appellate court found that the trial court was within its discretion to accept the appraiser’s testimony and valuation.
Sneed Disputes Valuation of Goodwill
Another main issue in Sneed’s appeal was the distributive award to Johnston. Sneed asserted that this award was incorrect because it was improperly based on Sneed’s goodwill value in his firm being marital property. The appellate court stated that goodwill is an asset of a business, so it must be included when calculating the value of a professional practice. Because goodwill can be considered part of a marital asset, it is subject to equitable distribution. Further, the trial court reviewed numerous exhibits regarding Sneed’s income, expenses, and employment, and the appellate court agreed that he could afford to pay the distributive award granted to Johnston.