The Issues Under Florida Law Relating to Personal Goodwill in a Dissolution of Marriage, Part II

In Florida, there’s a law about how to divide property when a couple gets divorced. One issue is how to divide the value of a business or one spouse’s share of a business. It’s been hard for lawyers and experts because they can’t use certain evidence to figure out the value of any personal goodwill a spouse might have in the business. This makes it tough to determine how much the business is really worth. In Florida, most business sales involve agreements that prevent the seller from competing with the buyer. This makes it hard for appraisers to figure out the true value of a business. Even though most of the value in these sales comes from things like brand reputation and customer relationships, Florida law says appraisers can’t use this information to determine a business’s value. This makes it tough to use traditional methods to figure out how much a business is worth. The court doesn’t like using methods that assume the seller won’t compete or stay involved after selling the business. This makes it hard for experts to give accurate valuations, and can lead to businesses being undervalued in divorces. In a divorce case, the husband argued that his business had no transferable value separate from his own reputation. The court agreed with him, but two years later the business was worth much more. This shows that personal goodwill, like a noncompete agreement, is important in determining the true value of a business in a divorce. Noncompete agreements are often used to convey the value of a business, even when there is no personal goodwill involved. There’s a pizza shop with a secret sauce that makes it really popular. When the owners want to sell the shop, they have to sign agreements with the buyer to teach them the recipe and make sure they don’t use it in another pizza shop. But in a divorce case, expert valuators might ignore these agreements and only look at the value of physical things like the building and equipment, not the secret sauce. This could be unfair to one spouse, who might not get the right amount of money in the divorce. It’s like the pizza shop being sold for less than it’s really worth, and one person getting all the extra money while the other person doesn’t get enough. In a Florida divorce, one spouse might have to give the other half the value of their business, and pay alimony based on their income. But after the divorce, the business could be sold for a lot more money. This seems unfair and is causing problems for some couples. In Florida, it’s really hard for experts to determine the value of a business in a divorce because of complicated laws. The courts require a specific method for valuation and don’t consider personal goodwill, making it even harder for experts to give an accurate value. Experts can’t rely on the usual market value approach because of this, which makes things even more tricky. In Florida, the way courts value a spouse’s business in a divorce can sometimes be unfair. They may only consider the physical assets of the business and not its intangible value, like its reputation or secrets. This can lead to one spouse getting more than they should. Experts and judges need to consider the unique details of each case and make sure both spouses are treated fairly. The Financial Accounting Standards Board provides a list of different types of intangible assets, such as trademarks, customer lists, and computer software. In legal cases, the fair market value of these assets is determined using the capitalization of earnings method. These assets can be important in divorce cases involving business ownership. In a legal case, the court has to figure out the value of a business’s goodwill. This can involve looking at evidence like direct sales or expert testimony. Different court cases have put limits on the types of evidence that can be used, like agreements not to compete. The amount of goodwill can affect how much money someone gets from selling their business. Abigail Beebe is a family law attorney, and Joshua B. AnGell is a financial expert. This column is from the Family Law Section of a legal organization. It’s all about promoting duty, serving the public, improving how justice is served, and advancing the study of law.

Source: https://www.floridabar.org/the-florida-bar-journal/the-issues-under-florida-law-relating-to-personal-goodwill-in-a-dissolution-of-marriage-part-ii/