This quarter’s column is the third part in a series aimed at doing a deep dive into the valuation and divisibility of goodwill in the Texas divorce context. In this column, I offer a summary of the factors cited by Texas courts in distinguishing between personal goodwill and commercial goodwill.

Goodwill is a dreadfully thorny concept. Neither the Texas Constitution nor the Texas Family Code explicitly address the issue of goodwill. Texas’s position that personal goodwill is not divisible upon divorce, but commercial goodwill is, comes from the Supreme Court of Texas’s landmark decision in Nail v. Nail, 486 S.W.2d 761, 763-64 (Tex. 1972).

Personal Goodwill Factors

Texas courts have looked to several factors in identifying personal goodwill: knowledge, skill, ability and experience; reputation; personality; relationships and contacts; generating business through personal efforts; and the solo nature of the business. Where goodwill is tied to a specific individual’s abilities and cannot transfer to a new owner, courts find personal goodwill.

Commercial Goodwill Factors

Factors indicating commercial goodwill include: a business name distinct from the individual’s name; established locations; established employees and workforce; contracts with customers in the name of the business; many customers; revenues generated separate from the individual’s efforts; and an established history. Where the goodwill exists independently of any one person and could transfer to a new owner, courts find commercial goodwill.

The key inquiry is whether the goodwill could survive the departure of the individual and still benefit a hypothetical purchaser of the business.