Business Goodwill in a North Carolina Divorce After Sneed v. Johnston
On August 14, 2026, the North Carolina Supreme Court held that the personal goodwill of a professional practice is not marital property. For business owners, professionals and their spouses, that changes what a business is worth in a divorce.
What the Supreme Court Decided
Sneed v. Johnston came out of Mecklenburg County. The husband founded a law firm as a sole practitioner during a marriage that lasted nearly twenty years. An appraiser valued the firm at $3,100,000 as of the date of separation, and allocated $302,436 of that to enterprise goodwill and $2,688,321 to personal goodwill.
The trial court treated all of it as marital property and ordered the husband to pay his former wife $1,550,000 over fifteen years. In 2024 the Court of Appeals affirmed, reasoning that North Carolina courts had never drawn a line between the two kinds of goodwill.
The Supreme Court reversed. In an opinion by Justice Allen, it held that personal goodwill does not qualify as marital property for equitable distribution. Nearly 87 percent of the firm’s appraised value fell into that category.
Personal Goodwill and Enterprise Goodwill
Goodwill is the value of a business beyond its equipment, accounts and other identifiable assets. The Court adopted a distinction most states already use.
Enterprise goodwill
- Belongs to the business, not to a person
- Comes from its name, location, staff, systems and established customer relationships
- Would transfer to a buyer and outlast the owner’s involvement
Personal goodwill
- Attaches to an individual’s reputation, knowledge and skill
- Shows up as the owner’s increased earning capacity
- Leaves when the owner leaves, because clients would go elsewhere
Why Personal Goodwill Cannot Be Divided
The Court gave three reasons that business owners will recognize from their own experience.
It cannot be distributed. The equitable distribution statute assumes marital property is something a court can hand to one spouse or the other. In the Court’s words, personal goodwill lacks “the capacity to be distributed.” It cannot be sold, assigned or awarded to anyone else.
It is future income, not a present asset. Personal goodwill is a prediction of what the owner will earn. An owner ordered to pay half its value has nothing to sell to raise the money, and would be paying out of earnings that do not exist yet.
It risks counting the same income twice. If future earning capacity is divided as property and then used again to set alimony, the paying spouse is charged twice on the same income.
What Did Not Change
- Enterprise goodwill. The Court did not rule on it, because the issue was not preserved on appeal. The trial court’s treatment of enterprise goodwill as marital property was left in place.
- Money already earned. Income the business produced during the marriage, and everything bought with it, is still marital property. Only the future earning capacity is excluded.
- Alimony. The Court said its decision is limited to equitable distribution and does not change how earning capacity is considered in alimony.
- How goodwill is valued. The earlier cases on valuing a professional practice were not overruled. Valuation is still a question of fact that turns on expert testimony.
What This Means in a Divorce
If you own the business
- A valuation should now state personal and enterprise goodwill separately
- The more the business depends on you personally, the less of its value is divisible
- Expect your income to carry more weight in the alimony claim
If your spouse owns the business
- Evidence that the business runs on its staff, systems, brand and contracts supports enterprise goodwill
- Income earned during the marriage and the assets it bought remain marital
- Alimony and an unequal division of other property may matter more than before
The Court did not say how to draw the line between the two kinds of goodwill, so the allocation will be contested by experts in almost every case involving a business or professional practice. The case involved a law firm, and the Court wrote its holding in terms of a professional practice. A medical, dental or accounting practice is a professional practice too, so the holding applies to them directly. For other closely held businesses that depend on their owner, we expect courts to follow the same reasoning, though that has not been decided.
Couples who want certainty do not have to leave this to a court. A prenuptial or postnuptial agreement can settle in advance how a business and its goodwill will be treated.
Goodwill and Sneed v. Johnston FAQs
Is business goodwill marital property in North Carolina?
Part of it can be. After Sneed v. Johnston, the personal goodwill of a professional practice is not marital property and cannot be divided in equitable distribution. Enterprise goodwill, the value that belongs to the business itself and would transfer to a buyer, has long been treated as marital property when it was built during the marriage, and the Supreme Court did not change that.
Does Sneed v. Johnston apply to businesses that are not professional practices?
The case involved a law firm, and the holding is written in terms of a professional practice. That covers medical, dental and accounting practices as well. The reasoning, that value tied to one person cannot be transferred or distributed, would seem to reach other owner-dependent businesses, but the Court did not say so. Expect that question to be argued in future cases.
Does this decision reduce alimony?
No. The Court said its decision is limited to equitable distribution and does not change how earning capacity is considered in alimony. A high-earning professional’s income is still central to an alimony claim.
How is personal goodwill separated from enterprise goodwill?
The Court did not prescribe a method. It remains a question of fact decided with expert testimony. Appraisers look at things like whether clients would follow the owner, how much revenue depends on the owner’s own work, the strength of the staff and systems, and whether the business could be sold without the owner staying on.
My case is pending or was recently decided. Does this affect me?
It may. Whether a new decision applies depends on where your case stands and what was preserved. Talk to an attorney promptly, because deadlines for challenging an order are short.
Own a Business or Married to Someone Who Does?
The value of a business in a North Carolina divorce now depends on how its goodwill is allocated. We can help you understand where you stand.
Managing Partner and Co-Founder, McIlveen Family Law Firm. Angela is a Board Certified Specialist in Family Law, certified by the North Carolina State Bar Board of Legal Specialization, and an experienced family law trial attorney who represents clients across North Carolina. She personally reviewed this page for legal accuracy.
