Court finds no personal goodwill despite a noncompete agreement
In a Florida divorce case, the husband appealed the trial court’s finding that the goodwill in his business, a provider of retirement plan and fiduciary services, was all enterprise goodwill.
BV News and Trends December 2024
A monthly roundup of key developments of interest to business valuation experts.
Business owner spouse stuck with agreed-upon valuation date
In a Pennsylvania divorce case, the wife was the 100% owner of a staffing business, but her husband ran it.
Explicate the “Personal” in Goodwill
Join experts Jim Alerding and Josh Shilts as they review personal versus entity goodwill issues and discuss the current state statutes, relevant case law, and examples. They will also review other personal versus entity goodwill issues, such as transferrable versus non-transferrable goodwill and methods of determining the breakdown of total goodwill into its components.
Donahue v. Donahue
This case is important because it held that the covenant not to compete value was not determinative of the value of personal goodwill. Florida had a law go into effect on July 1, 2024, regarding personal goodwill in divorce. It codified that personal goodwill was not a marital asset. Also, previously, when a business sale required a noncompete or restrictive covenant, its value was generally treated as personal goodwill and, therefore, not part of the marital equitable distribution. Today, however, courts may consider a portion of the restrictive covenant as enterprise goodwill, thereby increasing the value of the marital estate. It was up to the courts to make that distinction and determine whether such instruments should be considered martial assets.
Business’s Goodwill Determined to Be Enterprise Only; Covenant Not to Compete Does Not Change the Nature of the Goodwill
This case is important because it held that the covenant not to compete value was not determinative of the value of personal goodwill. Florida had a law go into effect on July 1, 2024, regarding personal goodwill in divorce. It codified that personal goodwill was not a marital asset. Also, previously, when a business sale required a noncompete or restrictive covenant, its value was generally treated as personal goodwill and, therefore, not part of the marital equitable distribution. Today, however, courts may consider a portion of the restrictive covenant as enterprise goodwill, thereby increasing the value of the marital estate. It was up to the courts to make that distinction and determine whether such instruments should be considered martial assets.
Kidan v. Schneider
The ultimate value determination in this case involved questions of the appropriate date of value, a question of whether to consider a transaction subsequent to the date of valuation, and a determination of the amount of personal goodwill.
Pennsylvania Appellate Court Affirms Trial Court Determination of Value of Wife’s 25% Interest in Staffing Business
The ultimate value determination in this case involved questions of the appropriate date of value, a question of whether to consider a transaction subsequent to the date of valuation, and a determination of the amount of personal goodwill.
Ripple effects of Florida’s updated law regarding goodwill
Regardless of whether you practice in Florida, a change in the law there—plus a recent court case—takes the analysis of enterprise versus personal goodwill in marital cases to another level.
Lunt v. Lunt
This divorce case provided a good analysis of personal versus enterprise goodwill and the elements that were included in each. It also discussed the history of personal and enterprise goodwill in Utah that progressively allowed the exclusion of personal goodwill from the marital estate in a divorce in Utah. The general principles of personal versus enterprise goodwill are applicable most everywhere.
Utah Appeals Court Affirms Trial Court Allocation of 5% of Value of Husband’s Website Business to Personal Goodwill
This divorce case provided a good analysis of personal versus enterprise goodwill and the elements that were included in each. It also discussed the history of personal and enterprise goodwill in Utah that progressively allowed the exclusion of personal goodwill from the marital estate in a divorce in Utah. The general principles of personal versus enterprise goodwill are applicable most everywhere.
Another Florida divorce case on goodwill—of the very same entity!
This is the first time in our recent memory in which a multimember entity (a medical practice) had two of its members get divorced (not from each other) and the valuation of personal goodwill needed to be resolved.
Florida court expands excludable personal goodwill in divorce
An important marital dissolution case out of Florida deals with a medical practice with 35 shareholders.
Revised Rule 702’s sharper teeth bared in new case
In an Illinois case, expert witnesses were excluded from testifying under the revised Rule 702, the federal rule of evidence, that went into effect this past December.
Can a neutral valuation expert move over to one side?
That’s what happened in a North Carolina divorce case.
Conde-Berrocal v. Conde
This was a companion case to the Rosenberg v. Rosenberg case, which was decided at the appellate court at the same time as this case by the same panel. Both cases dealt with personal goodwill in Florida in a multimember practice. The physician party in each case was part of the same practice and participated in the same sale of the company to a healthcare company. Personal goodwill was handled differently in each case in large part because the evidence submitted to the trial court was different.
Florida Appellate Court Affirms Trial Court’s Acceptance of Physician Spouse’s Expert in Calculating the Amount of Personal Goodwill
This was a companion case to the Rosenberg v. Rosenberg case, which was decided at the appellate court at the same time as this case by the same panel. Both cases dealt with personal goodwill in Florida in a multimember practice. The physician party in each case was part of the same practice and participated in the same sale of the company to a healthcare company. Personal goodwill was handled differently in each case in large part because the evidence submitted to the trial court was different.
Athea v. Athea
In this divorce case, the Florida appellate court upheld the trial court’s acceptance of the husband’s valuation expert including the exclusion of personal goodwill. The court found the valuation and exclusion well supported by evidence and thereby will not be reversed. The court remanded the determination of monthly income of the wife.
Appellate Court Upholds Exclusion of Personal Goodwill—Well Supported
In this divorce case, the Florida appellate court upheld the trial court’s acceptance of the husband’s valuation expert including the exclusion of personal goodwill. The court found the valuation and exclusion well supported by evidence and thereby will not be reversed. The court remanded the determination of monthly income of the wife.
Sneed v. Sneed
In this North Carolina appellate divorce case, the court affirmed the trial court decisions, including the determination of value of the husband’s law firm interest. The witness for the wife, who was originally a court-appointed expert, testified as to the value of the law practice and included his analysis of personal-versus-entity goodwill. Both courts included all goodwill in the marital estate as per North Carolina case law. The expert witness apparently submitted a calculation of value for his testimony.
North Carolina Court of Appeals Affirms Trial Court as to Inclusion of Personal Goodwill
In this North Carolina appellate divorce case, the court affirmed the trial court decisions, including the determination of value of the husband’s law firm interest. The witness for the wife, who was originally a court-appointed expert, testified as to the value of the law practice and included his analysis of personal-versus-entity goodwill. Both courts included all goodwill in the marital estate as per North Carolina case law. The expert witness apparently submitted a calculation of value for his testimony.
Clampitt v. Clampitt
The husband appealed the family court’s valuation of the family business. In a brief opinion, the court of appeals (South Carolina) affirmed the family court’s value because the change in value during the litigation was attributable to the husband, the family court accounted for personal goodwill, and the valuation was within the range of evidence presented.
South Carolina Appeals Court Affirms Value of Family Business—Within Evidence Presented
The husband appealed the family court’s valuation of the family business. In a brief opinion, the court of appeals (South Carolina) affirmed the family court’s value because the change in value during the litigation was attributable to the husband, the family court accounted for personal goodwill, and the valuation was within the range of evidence presented.
Another case of lopsided valuation experts
A Minnesota divorce case is an example of why judges can get the perception that valuation experts are hired guns.
Tennebaum v. Deshpande
In this Minnesota appeal of a marital dissolution decree, the district court received valuations from experts representing both parties and determined the value of the husband’s business interest in an asset management company. The husband appealed that value. The district court had considered matters of methodology as well as personal goodwill. The court of appeals found that the district court did not abuse its discretion and affirmed the judgment of the district court.