The North Carolina Supreme Court recently addressed the classification of goodwill in divorce proceedings, specifically distinguishing between personal and enterprise goodwill. This ruling, issued on August 14, 2026, affects how marital property is divided during divorces, particularly for professional practices like law firms. The decision is significant for individuals navigating divorce settlements involving business assets.
The case, Sneed v. Johnston (Docket No. 130PA24), involved Jason M. Sneed and Charity A. Johnston, who divorced after nearly 20 years of marriage. The couple had agreed on the division of most assets but disagreed on the classification of goodwill associated with Sneed's law firm, Sneed, PLLC. The trial court had ruled that both personal and enterprise goodwill were marital property, leading to a significant financial obligation for Sneed.
The Supreme Court's ruling clarifies that while enterprise goodwill can be considered marital property, personal goodwill cannot. This distinction is crucial because personal goodwill is tied to the individual practitioner's reputation and future earning potential, while enterprise goodwill is associated with the business itself and can be transferred upon sale. The court stated, "We hold that the personal goodwill of a professional practice does not qualify as marital property for equitable distribution purposes." This decision reverses the earlier court rulings that classified both types of goodwill as marital property.
The dispute began when Sneed and Johnston separated in 2015 and divorced in 2016. During the trial, the court appointed an appraiser to assess the law firm's value, which was determined to be $3.1 million. The appraiser found that 90% of this value was tied to personal goodwill, which led to the trial court ordering Sneed to pay Johnston a distributive award of $1.55 million.
On appeal, Sneed challenged the classification of goodwill, arguing that personal goodwill should not be considered marital property. The Court of Appeals upheld the trial court's ruling, asserting that courts had consistently declined to distinguish between personal and enterprise goodwill. However, the Supreme Court disagreed with this interpretation, emphasizing that personal goodwill should not be classified as marital property.
Justice Trey Allen, writing for the court, noted that personal goodwill represents future earning potential tied to the individual, while enterprise goodwill has a determinable value that can exist independently of the practitioner. The court's decision aligns with the majority view in other states, which also differentiate between the two types of goodwill in divorce cases.
This ruling has significant implications for future divorce cases involving professional practices. It sets a precedent that personal goodwill cannot be divided as marital property, potentially easing the financial burden on practitioners who might otherwise be required to pay a share of their future earnings to an ex-spouse. The court's decision does not affect alimony considerations, which can still take into account a spouse's earning capacity.
Looking ahead, this ruling may influence how courts in North Carolina handle similar cases in the future. The distinction between personal and enterprise goodwill could lead to more equitable outcomes in property distribution during divorces involving professional practices. It remains to be seen how this decision will affect ongoing and future divorce proceedings in the state.
The court's ruling can be appealed, but the specific focus of the appeal would likely need to address other aspects of the case, as the primary issue regarding the classification of personal goodwill has been resolved. There are no related cases pending that directly challenge this ruling at this time.