Determining Personal Goodwill vs. Enterprise Goodwill in Divorce Cases

During divorce proceedings, valuing a business is never a simple matter. This is particularly true when there is a need to distinguish between personal goodwill and enterprise goodwill. Goodwill is defined as an intangible asset that arises as a result of reputation, name, location, customer loyalty, products, and other factors. Other examples of intangible business assets are trademarks, copyrights, contracts, and brand recognition. The umbrella of goodwill also includes personal and enterprise goodwill.

What is Personal Goodwill vs. Enterprise Goodwill? 

Enterprise goodwill refers to a set of characteristics related to the business that can be transferred to a new owner during a sale. Examples of enterprise goodwill include brand, location, customer base, patents, and workforce. A business maintains enterprise goodwill regardless of who the owner or operator of the business is.

Personal goodwill, on the other hand, refers to personal relationships and characteristics that help create a customer base and drive revenue stream. Examples of personal goodwill include the owner’s experience, reputation, skills, and industry knowledge.

The Importance of Goodwill when Valuing a Business During Divorce 

The importance of goodwill when valuing a business during divorce is significant. Personal goodwill in Florida is not considered marital property. Therefore, it is not subject to equitable distribution in the same manner as other marital assets. Enterprise goodwill, however, is treated as a marital asset and therefore, must be divided during divorce.

How to Quantify Personal and Enterprise Goodwill 

When valuing a business, an analyst will first conduct research on the entity and interview management personnel. Using these findings, the analyst will then estimate the degree to which enterprise and personal goodwill exists. There are many questions the business owner may ask when making this decision. These include:

• Are supplier and customer relationships contractual with the business or are they linked to a certain individual?
• Is business generated through the reputation of the business or the expertise or reputation of a certain individual?
• Does the business generate profit through multiple individuals or largely by one specific individual?
• Are there non-compete agreements between the employees and owners?

After the analyst has separated enterprise goodwill from personal goodwill, they will then have to value the enterprise goodwill, as this is the portion subject to division during divorce. They often do this by using the ‘with and without’ method. In this model, the analyst will determine the value of the business if the current owner were to remain in the entity and the second will determine the value of the business if the current owner were to leave and compete elsewhere.

Our Family Law Attorney in Tampa Can Value Your Business 

Valuing a business is never easy, particularly when issues such as personal and enterprise goodwill are factors. At Florida Law Advisers, P.A., our Tampa family law attorney knows how to value a business and will reach out to our network of experts when necessary to ensure a fair valuation. Call us now at 1 (800) 990-7763 or contact us online to schedule a consultation and to learn more about how we can help.

Source:

leg.state.fl.us/statutes/index.cfm?App_mode=Display_Statute&URL=0000-0099/0061/Sections/0061.075.html