In effectuating a division of property and assets in a divorce proceeding in Florida, enterprise goodwill represents the tendency of customers to return to a business regardless of the reputation of a person who works at the business. Personal goodwill is attributable to the reputation and continued participation of an individual who works at the business. The Florida Court of Appeals recently addressed this issue in Schmidt v. Schmidt.
In Schmidt v. Schmidt, the Florida Court of Appeals stated that: “Enterprise goodwill, defined as the value of a business “which exceeds its tangible assets” and represents “the tendency of clients/patients to return to and recommend the practice irrespective of the reputation of the individual practitioner,” is a marital asset subject to equitable distribution. Thompson v. Thompson, 576 So. 2d 267, 269 (Fla. 1991).
Personal or professional goodwill attributable to the skill, reputation, and continued participation of an individual is not a marital asset. id. at 270 (explaining ” ‘[a]ny value which attaches to the entity solely as a result of personal goodwill represents nothing more than probable future earning capacity, which … is not a proper consideration in dividing marital property’ “) . Thus, the value of personal or professional goodwill must be excluded when assigning a value to a business for purposes of equitable distribution. If a business only has value above its assets if a spouse refrains from competing with the business, it is clear that the value is attributable to personal goodwill. “The existence of a covenant not to compete signals the existence of personal goodwill. “When valuing the enterprise goodwill of a business, the necessity of a covenant not to compete is significant as it signals the existence of personal goodwill, which cannot be included in determining the value assigned to the business for purposes of equitable distribution. Walton v. Walton, 657 So. 2d 1214 (Fla. 4th DCA 1995), and Held v. Held, 912 So. 2d 637 (Fla. 4th DCA 2005), illustrate the point. In Walton, the trial court was faced with the task of valuing the husband’s accounting practice. 657 So. 2d at 1214-15. The evidence established that it was the husband’s name on the door, the husband who conducted the majority of client conferences, and the husband who was responsible for bringing clients to the practice…The trial court accepted the wife’s expert’s valuation for purposes of equitable distribution. This court reversed, finding that “[t]he most telling evidence of a lack of any institutional goodwill was the wife’s expert’s testimony that no one would buy the practice without a noncompete clause.”
To speak with a Wellington, Florida divorce attorney contact Matthew Lane & Associates, P.A. at (561) 651-7273.