In most states, the goodwill that attaches to a professional personally, the surgeon's reputation or the lawyer's client relationships, is not divisible in divorce. Colorado is not most states. Since the late 1970s, Colorado courts have treated a professional practice's goodwill as marital property, without carving out the part that walks out the door with the owner.
The stakes are real. A dental practice with $250,000 of equipment and receivables can carry a court-found value of $900,000 once goodwill is counted, and the non-dentist spouse shares in all of it. Here is why, how appraisers separate the two anyway, and what an owner can do about it.
Enterprise Goodwill and Personal Goodwill
Goodwill is the intangible value of a business above its tangible assets: the reason a buyer pays more than the equipment, receivables, and cash are worth. Appraisers divide it in two. Enterprise goodwill belongs to the business itself: the name, location, systems, workforce, and customer base that would keep producing revenue if the owner were replaced. Personal goodwill belongs to the individual: skill, reputation, judgment, and relationships that customers follow when the person moves.
The working test is transferability. If a buyer could acquire it and keep it without the seller staying on, it is enterprise goodwill. If it requires the owner's continued presence, or a non-compete to keep the owner away, it is personal. In a company with a management team, most goodwill is enterprise; in a one-doctor practice, most is personal.
Why Colorado Counts Professional Goodwill as Marital
The Colorado Court of Appeals held in In re Marriage of Nichols, 606 P.2d 1314 (Colo. App. 1979), that the goodwill of a dental practice built during the marriage is marital property. In re Marriage of Martin, 707 P.2d 1035 (Colo. App. 1985), added that goodwill's value does not depend on what a willing buyer would pay; the question is whether the business has value to the owner beyond its tangible assets. The Colorado Supreme Court confirmed the approach in In re Marriage of Huff, 834 P.2d 244 (Colo. 1992), valuing a lawyer's partnership interest by capitalizing his excess earnings, and In re Marriage of Medeiros, 2023 COA 42M, upheld goodwill value for a firm that was not yet profitable but had earning capacity and could keep its clients.
None of those decisions separates personal from enterprise goodwill or excludes the personal part. That places Colorado among a minority of states, roughly a dozen, that treat personal goodwill as divisible. The reason is a standard-of-value choice: Colorado courts may value a business for what it is worth to the spouse who keeps it, not only for what a stranger would pay. The blog's article on standards of value covers that choice; the point here is that the "value to the owner" lens is why an untransferable reputation lands on the marital balance sheet.
Two limits matter. Under In re Marriage of Bookout, 833 P.2d 800 (Colo. App. 1991), goodwill is measured from past results, not the professional's expected future earnings; future earnings are evidence that goodwill exists, not the thing divided. And property is valued as of the decree under C.R.S. § 14-10-113(5), so the goodwill that counts is the goodwill on that date.
How Appraisers Separate the Two Anyway
Even where the law does not exclude personal goodwill, appraisers measure it, because it drives risk and because a judge choosing between two reports wants to know how much value depends on one person. Three methods appear most often.
- Excess earnings, the method Huff and Bookout endorsed. The appraiser determines what a comparably trained employee would earn on salary (in Bookout, $70,000 for a physical therapist against the owner's roughly $102,000), subtracts that and a fair return on tangible assets from the owner's normalized earnings, and capitalizes the rest. Huff used a multiple of three, but the multiple should reflect the risk in the business on the valuation date.
- The multi-attribute utility model. The appraiser scores attributes such as the owner's reputation and skill, age and health, referral sources, client concentration, workforce depth, and name recognition for importance and presence, and derives a percentage split between the two.
- The "with and without" analysis. The business is valued twice: once as it operates, and once assuming the owner leaves and is replaced at market compensation. The difference is personal goodwill.
A Colorado court need not adopt any of these. Under In re Marriage of Keyser, 820 P.2d 1194 (Colo. App. 1991), market surveys, industry rules of thumb, and gross-revenue approaches are acceptable evidence, and the court may accept one expert's number over another's. Rules of thumb are a sanity check, not a method.
The Professional Practice and the One-Owner Company
The hardest cases are the ones where the owner is the business: the solo physician, the consultant, the contractor whose customers call his cell phone. There the personal share can be nearly everything, and the owner's protest that "there is nothing to sell" has real force. Martin answers it: value to the owner does not depend on salability. So the appraiser's reasonable-compensation figure becomes the main event, because every dollar of "excess" above it is capitalized into property.
Expect a fight over the capitalization rate too: a one-person practice is riskier than a ten-provider firm, and a higher rate lowers value.
Non-Competes, and Where Goodwill Ends and Income Begins
Buyers pay for personal goodwill only when a non-compete makes it stick. In In re Marriage of Fischer, 834 P.2d 270 (Colo. App. 1992), the court of appeals held that a divorce court may impose a covenant not to compete on the spouse who does not receive the business, treating the transfer as a sale of a business under the statutory exception. That statute, C.R.S. § 8-2-113, was rewritten in 2022 and again by SB25-083, effective August 6, 2025, which voids most new non-competes for physicians, dentists, advanced practice nurses, physician assistants, and midwives. Whether a divorce court can still bind a healthcare professional as Fischer allowed is now an open question.
The overlap with income is the other pressure point. The earnings capitalized into goodwill are the same earnings from which maintenance and child support are paid. Huff held that excess earnings does not double count because it capitalizes past earnings rather than converting future income into property; the blog's separate article on the double-dip problem covers how that plays out.
What the Owner Can Legitimately Do
The owner cannot make goodwill disappear, and trying to, by cutting salary, delaying billings, or steering clients to a colleague, violates the disclosure duty in C.R.C.P. 16.2 and invites reallocation up to five years after the decree. What the owner can do is make the record reflect reality.
- Retain a credentialed appraiser (ABV, ASA, or CVA) early and consider a joint expert; a joint report carries no presumptive weight if disputed, but it narrows the fight.
- Document why value depends on you: hours worked, referral sources, client concentration, licensure, and what a replacement would cost. That evidence supports higher reasonable compensation and a higher capitalization rate.
- Provide complete normalization data. Personal expenses run through the company, relatives on payroll, and below-market rent to a related entity will be found; disclosing them first preserves credibility.
- Do not rely on a buy-sell formula. Under Keyser, In re Marriage of Piper, 820 P.2d 1198 (Colo. App. 1991), and In re Marriage of Nevarez, 170 P.3d 808 (Colo. App. 2007), an owners' agreement price is considered but does not bind a spouse who never signed it.
- Plan the payment. Colorado courts have approved buyouts over time with interest where a lump sum would cripple the business; a workable note is often the answer to a big goodwill number.
Talk to a Denver Divorce Attorney About Goodwill and Business Valuation
Aaron Herzberg is a divorce attorney in Greenwood Village, Colorado, serving Denver and the Front Range, with more than 30 years of trial experience and a practice focused on divorce, custody, and financially complex family law. Goodwill is usually the largest and least visible number in an owner's divorce, and the evidence that shapes it must be built long before a report is due. A first meeting is a paid consultation, not a free call and not a sales pitch.
Read the full guides on DenverDivorce.com: Business Valuation in a Colorado Divorce and Professional Practices in Divorce.
Educational information only, not legal advice. Reading this article does not create an attorney-client relationship.
