Throughout Montgomery County, Bethesda, Potomac, Chevy Chase, and the District of Columbia, a significant share of the region's wealth is tied up not in salaries, but in businesses — medical and dental practices, law firms, government contracting companies, consulting firms, and family-owned enterprises. When the owner of one of these businesses goes through a divorce, the business itself often becomes the single most contested asset in the case. Unlike a bank account or a retirement plan with a stated balance, a private business has no ready market price. Its value must be constructed, argued over, and ultimately decided — often with dueling experts on either side.
Whether you built the business yourself or you are the non-owner spouse who helped it grow, understanding how Maryland courts approach business valuation is essential to protecting your interests.
Maryland's Equitable Distribution Framework
Maryland divides marital property under the doctrine of equitable distribution, governed by the Maryland Code, Family Law Article, § 8-205. Under this statute, the court first identifies which property is marital and which is separate, then makes a fair — though not necessarily equal — division after weighing factors such as each spouse's contributions to the marriage, the length of the marriage, and the economic circumstances of each party.
A business interest acquired or grown during the marriage is generally treated as marital property, even if only one spouse's name is on the company. This holds true even when a business was started before the marriage, if it grew in value during the marriage due to the owner's efforts — that increase in value can itself be a marital asset subject to division.
Step One: Classifying the Interest
Before a business can be valued, the court must determine what portion of it, if any, is marital. This analysis considers:
- When the business was founded or the ownership interest acquired — before, during, or after the marriage
- What caused the business to grow in value — active efforts by the owner spouse during the marriage versus passive market forces or growth that occurred before the marriage began
- Whether marital funds or the non-owner spouse's labor contributed to the business, such as an owner's spouse working unpaid in the business or marital income being reinvested in it
A business founded years before the marriage may still have substantial marital value if it expanded significantly while the couple was together.
Step Two: Choosing a Valuation Method
Once a business interest is classified as marital, it must be valued. Maryland courts do not use a single formula. Instead, valuation experts — typically forensic accountants or certified business valuators — generally rely on one or more of three recognized approaches:
- The Income Approach. This method values the business based on its projected future earnings or cash flow, discounted to present value. It is common for established businesses with a track record of stable revenue.
- The Market Approach. This method compares the business to similar companies that have recently sold, using market multiples to estimate value. It works best when comparable sale data exists, which can be limited for small or highly specialized practices.
- The Asset Approach. This method totals the business's tangible and intangible assets and subtracts its liabilities. It is often used for asset-heavy businesses or as a floor value when income is unstable.
Because each method can produce a meaningfully different number, and because business owners typically favor lower valuations while the non-owner spouse favors higher ones, it is common for each side to retain its own expert. The result is frequently what practitioners call a "battle of the experts," where the court must weigh competing reports and methodologies before settling on a value.
Step Three: The Goodwill Question
One of the most contested issues in valuing a Maryland business — particularly professional practices such as medical, dental, or law practices — is goodwill. Goodwill represents the intangible value of a business beyond its physical assets: its reputation, client relationships, and expectation of continued business.
Maryland law draws a critical distinction, established in the landmark case Prahinski v. Prahinski, 321 Md. 227, 582 A.2d 784 (1990):
- Enterprise goodwill is tied to the business itself — its location, systems, staff, brand recognition, and transferable client base. Because this value exists independent of any one individual, Maryland treats enterprise goodwill as marital property subject to division.
- Personal goodwill is tied specifically to the individual owner's own reputation, skill, and relationships. Because this type of goodwill cannot be sold or transferred separately from the person who created it, Maryland courts generally exclude it from the marital estate.
In Prahinski, Maryland's highest court held that for goodwill to be treated as marital property, it must be "a business asset having a value independent of the continued presence or reputation of any particular individual." Applying that standard, the court found that the value of a solo law practice consisted almost entirely of the reputation of the attorney who ran it, and was therefore not a divisible marital asset. Courts applying this same principle have reasoned, for example, that goodwill built into a restaurant's brand and location is more likely to be enterprise goodwill, while goodwill tied to a single dentist's individual reputation is more likely to be personal goodwill excluded from division.
This distinction can dramatically change the numbers in a case, which is why it is critical that any valuation expert retained in your case explicitly separates enterprise goodwill from personal goodwill — and why an attorney experienced in challenging or defending these reports is so important.
Watch for "Double Dipping"
A separate and often overlooked issue arises when a business's future income stream is used both to value the business for property division and to calculate alimony or child support. If a court awards one spouse half the value of a business based on its projected future earnings, and then also orders the business-owner spouse to pay support calculated from those same future earnings, the non-owner spouse may effectively be compensated twice from the same income stream. Skilled counsel and valuation experts account for this overlap so that support and property division do not double-count the same financial resource.
Structuring the Division
Because most closely held businesses and professional practices cannot simply be split in half, courts and settlement agreements typically resolve the business interest through one of a few structures:
- Offset with other marital assets. The owner spouse keeps the business, while the other spouse receives a larger share of other marital property — retirement accounts, real estate, or investment accounts — of comparable value.
- Structured buyout. The owner spouse pays the other spouse their share of the business's value over time, often through a promissory note.
- Co-ownership or deferred sale. Less common, but occasionally used when both spouses remain involved in the business or when an immediate valuation is impractical.
Choosing the right structure depends heavily on the business's cash flow, its liquidity, and each spouse's post-divorce financial needs.
Protecting Your Interests
Divorces involving a privately held business are rarely simple, and the financial stakes are often too high to leave to guesswork. Business owners need counsel who can protect the enterprise they built, ensure personal goodwill is properly excluded from the marital estate, and prevent double counting between property division and support. Non-owner spouses need counsel who can ensure the business is not undervalued, that all relevant records are produced in discovery, and that they receive their fair share of what was, in many cases, a joint effort to build.
Speak With a Maryland Business Valuation Divorce Attorney
Valuing and dividing a private business, partnership, or professional practice in a Maryland divorce requires close coordination between experienced legal counsel and qualified financial experts. The Law Offices of Thomas Stahl represents business owners, professionals, and their spouses throughout Maryland and the District of Columbia in complex, high-asset divorce matters involving closely held companies and professional practices.
If you are facing a divorce that involves a business interest, call the Law Offices of Thomas Stahl today to schedule a confidential consultation and discuss how we can help protect what you have built.
This article is provided for general informational purposes only and does not constitute legal advice. Every divorce and business valuation case depends on its own specific facts, and laws are subject to change. Reading this article does not create an attorney-client relationship with the Law Offices of Thomas Stahl. For advice regarding your specific situation, please contact our office directly to schedule a consultation.