The July 31, 2024 Supreme Court opinion in Bostick v. Bostick, reversed a ruling from the Court of Appeals, Bostick v. Bostick, 436 S.C. 43, 872 S.E.2d 859 (Ct.App. 2022), which held most of the proceeds from the sale of Husband’s dental practice represented enterprise goodwill—which is subject to equitable distribution. The Supreme Court held the family court correctly found that the portion of the sales proceeds that was paid in exchange for the goodwill in the practice and a restrictive covenant not to compete, was personal goodwill—and therefore not subject to equitable distribution.
In Bostick, Husband, during the pendency of the divorce litigation, sold his dental practice for $569,000. According to the sales contract, $424,140 was paid in exchange for the goodwill in the practice and a restrictive covenant not to compete, with the remaining portion of the sales price securing the practice’s hard assets. The parties agreed the remaining portion was a marital asset subject to equitable distribution. The dispute was whether the $424,140 was value of the actual business—i.e., enterprise goodwill subject to equitable distribution by the family court—or payment to Husband for his personal goodwill, and therefore not subject to division by the court.
At trial, Wife did not offer any evidence to dispute the value of the goodwill being the amount reflected in the sales contract. Wife presented no evidence to establish the goodwill associated with the dental practice was enterprise goodwill, nor did she refute Husband’s evidence demonstrating the goodwill was personal. Wife admitted that patients were drawn to the practice because of Husband’s efforts in the community. She further testified that she marketed Husband’s dental skills personally, telling potential patients he was a “painless dentist.” The opinion described Husband’s efforts to establish personal goodwill as a dentist in the Ridgeland area during his almost 50 years of practice. It noted the purchaser’s requirement that Husband execute a covenant not to compete in the geographic vicinity as a condition of the sale demonstrated this value was personal goodwill.
In deciding to treat this $424,140 as personal goodwill, the Supreme Court looked to the actual sales contract. That contract precluded Husband’s ability to “solicit business or attempt to convert to other providers of the same or similar services as provided by Buyer, any customer, client or account Buyer or with which Bostick has had any contact during the term of ownership of Seller.” Husband also agreed he would not engage in or be financially interested in any business or group (competitor or customer) similar to or in competition with the buyer within a fifteen mile radius.[i]
The Supreme Court noted:
Generally, enterprise goodwill is that which exists independently of one’s personal efforts and will survive one’s involvement with the business. In contrast, personal goodwill is associated with individuals: it is that part of increased earning capacity that results from the reputation, knowledge and skills of individual people. For that reason, the goodwill of a service business, such as a professional practice [such as dentistry], consists largely of personal goodwill.
Citations omitted; emphasis in original.
The Supreme Court disagreed with the Court of Appeals that such a covenant was a “hollow promise” due to Husband’s impending retirement, noting:
The dental practice’s success and reputation existed solely because of Husband’s professional skill and broad, community-focused outreach. That being the case, any prudent purchaser of the business would insist on a covenant not to compete— Husband’s age and health notwithstanding—to close the door on any possibility of Husband’s association with or endorsement of a competitor.
While Bostick doesn’t prevent a family court from finding some enterprise goodwill in a service business, it makes such rulings highly unlikely—especially in the context of professional services.
[i] In my blog on the Court of Appeals opinion, I had no firm view on whether the Court of Appeals’ decision on goodwill was correct. The Court of Appeals opinion does not mention this language from the contract. Had it done so, I would have thought the opinion clearly erroneous. Appellate attorneys often complain that appellate opinions frame the facts to justify the results. Here such a compliant would be justified.
