Personal and Enterprise Goodwill
Posted By Posted by Blair Chan on May 7, 2015 9:50am PDT || May 7, 2015
When determining the value of a marital business in a divorce, there are two forms of goodwill that require consideration in terms of determining the value of the business. The first is personal goodwill. Personal goodwill is attributable to the skill, reputation, and continued participation of an individual. In other words, if the value and success of the business is dependent upon the reputation and continued involvement of the spouse, this is personal goodwill. The general rule is that personal goodwill is not a marital asset subject to equitable distribution.
The second form of goodwill is enterprise goodwil, and it l is a marital asset. Enterprise goodwill is the value of a business which exceeds its tangible assets and represents the tendency of clients and customers to return to and recommend the business irrespective of the reputations of individual practitioners. One way to differentiate between the two is to consider whether the business is marketable without a non-compete agreement should the owner sell the business. If the business has enterprise goodwill, the business itself independent of the owners has value which can be transferred. If the business value is greater if the owners are obligated not to compete, this indicates the existence of personal goodwill and not enterprise goodwill. The case of Schmidt v. Schmidt, 120 So.3d 31 (Fla. 4th DCA 2013) is an excellent reference on this issue.
If you have a question about what should happen with your business during your divorce, contact Givens Givens Sparks to speak with a family law attorney.