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Valuation of Business in Divorce Cases in Maryland

Maryland courts undertake a three-step process to determine whether a monetary award should be granted for a property, and if so, how much. The three (3) step process is: A) Determining whether a property is marital, B) Determining the value of the property that is determined to be marital, and C) Considering the statutory factors in deciding the equitable division of martial assets and the amount of monetary award.
Determining the value of a business is the subject of many litigated divorce cases. Often the parties have their respective valuation professionals that present the court with divergent and much disputed testimony regarding the value of a marital business at their divorce trial. Under Maryland law, value is defined as fair market value, and fair market value is “the amount at which property would change hands between a willing buyer and a willing seller.” Rosenberg v. Rosenberg, 64 Md.App 487, 497A.2d 485 (1985).

The second question in determining the value of a business is how to address Goodwill. Maryland courts addressed the definition of Goodwill and distinguished it between a business asset and an individual’s good reputation. Prahinski v. Prahinski, 321 Md 227, 582 A.2d 784 (1990). The Prahinski court stated that “for professional Goodwill to be marital property, it must be a business asset having a value independent of the continued presence or reputation of any particular individual.” The court distinguished the two. First, where Goodwill is a marketable business asset distinct from the personal reputation of a particular individual, as is usually the case with many businesses, that Goodwill has an immediately discernible value as an asset of the business and may be identified as an amount reflected in a sale or transfer of a business. Second, if the Goodwill depends on the continued presence of a particular individual, such Goodwill, by definition, is not a marketable asset distinct from the individual. Personal Goodwill associated with a dentist, for example, would most likely not be considered a marital asset as the Goodwill is generally dependent on the reputation of the dentist. The Goodwill of a restaurant, on the other hand, would probably be considered a marital asset because it is independent of its owner.

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