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

Family Law

Over the years, Florida courts have been called upon to address “goodwill” in dissolution of marriage cases. The law, which has remained in line with Thompson v. Thompson, 576 So. 2d 267 (Fla. 1991), has created problems for lawyers, experts, and judges in trying to determine what role, if any, goodwill plays in the equitable distribution of a marital business or component of one spouse’s business interest. One significant challenge has been that experts cannot rely on any market sales evidence that includes a noncompete or similar agreement of any kind. In reality, nearly every real-world business transaction requires such agreements to facilitate the sale of a business, even when such business does not indicate any existence of personal goodwill nor quantify the value of such personal goodwill. Thus, experts are being forced to utilize an unrecognized valuation, and not “actual, market-based” evidence, to show any personal goodwill existing separate and apart from the seller’s reputation.

Directly on point, a major private markets transaction database commonly relied upon by business valuation experts to develop market-based evidence of value, reported 2,455 private business transactions involving companies that sold in the state of Florida from December 31, 2012, through December 31, 2015. Yet, 96.6% of those transactions included some form of a noncompete agreement,[1] and 47 included an employment agreement or transitional services agreement.[2] This means that more than 98% of transactions reported in the state of Florida during that three-year period would automatically require a Florida court to find that goodwill is separate and apart from the reputation of the seller.[3]

In all of these transactions, the median value for intangibles was nearly 68% of the total purchase price.[4] A significant element of value in these transactions related to value in excess of the tangible net assets (i.e., goodwill and intangible assets). Nearly 88% of these transactions included value in excess of book value.[5] Now, it is highly unlikely that all of the intangible value in these transactions related solely to personal goodwill. In reality, only about 33% of the total purchase prices in these transactions is allocated to identifiable intangible assets,[6] which exist separate from any goodwill.[7] Yet, under Florida law, this information, although highly relevant to appraisers, would not provide “competent evidence of value” according to Thompson and progeny, solely because these transactions include some form of a noncompete agreement.

The rulings in these cases further limit an appraiser’s ability to utilize other widely recognized valuation methods, such as the capitalization of earnings method.[8] Florida law firmly claims the most relevant, competent evidence for establishing goodwill is “what a willing buyer would actually pay in a real-world transaction.”[9] The real transactional evidence, mentioned above, clearly shows that market transactions between a hypothetical buyer and seller involve a covenant not to compete or similar agreement, meaning, an appraiser is left to make an “assumption” of value presuming a noncompetition agreement or similar agreement; otherwise this simply could not comport with real world market evidence.

Even knowing this, the First District Court of Appeal criticized the use of any method that relies upon the assumption of a covenant not to compete or the continued involvement of the seller post sale.[10] Obviously, this is commonly asked at trial as, “does the buyer require and does your business valuation method assume a covenant not to compete or consulting agreement?” We know nearly all real-world transactions require these agreements. Experts are generally forced to answer this question in the affirmative or risk losing all credibility with the court, leaving experts with limited ability to provide competent, reliable evidence of goodwill using the fair market value standard. A savvy and perceptive attorney can then exploit the simple reality of the real-world market and attack an expert’s opinion, claiming their testimony and evidence is unreliable, as according to the Florida Supreme Court in Thompson.[11] Ultimately, many business assets in a Florida dissolution of marriage are undervalued, resulting in substantial, transferable, goodwill value being appraised closer to tangible net book value.

In Kearney v. Kearney, 129 So. 3d 381, 390 (Fla. 1st DCA 2014), the husband took the position that his business had “no transferable goodwill” separate from his reputation.[12] This was solely based upon his claim that it “simply could not be sold in the marketplace without a noncompete from the [h]usband.”[13] The trial court accepted the husband’s theory that the “net value” was equivalent to a liquidation of its tangible net assets. Showing a perfect example of the issues described herein and presented in some dissolution of marriages in Florida, two years later, this company was worth 28 times more than when it was purchased.[14] The First District upheld the decision, yet found it “astonishing that [the company]…[had] not a thimbleful of ‘institutional goodwill’ to its name.”[15]

Although the economic spirit of Thompson was to exclude personal goodwill, by defining personal goodwill as an asset that cannot be sold in the marketplace, it seems the rulings in Weinstock v. Weinstock, 634 So. 2d 775 (Fla. 4th DCA 1994), Walton v. Walton, 657 So. 2d 1214, 1215 (Fla. 4th DCA 1995), and Held v. Held, 912 So. 2d 637 (Fla. 4th DCA 2005), have unintentionally expanded the scope of Thompson by equating personal goodwill to a covenant not to compete (or similar agreement).[16] It is the continued reliance on such law that forces appraisers to assume these critical agreements, for the purpose of a dissolution of marriage, do not exist. We know, however, that they are essential and typically required to convey the true value of a business to any buyer, even when no personal goodwill whatsoever exists. Reality shows that noncompete and other similar agreements are often used to convey the enterprise goodwill and/or the identifiable intangible assets of a business, which often exist separate from personal goodwill.

Consider a mom-and-pop pizza shop where its delicious and secretive pizza sauce — a corporate trade secret — drives the continued customer patronage. Any buyer would have to require the seller to sign a covenant not to compete and likely a transitional services agreement. Yet, the reason for these agreements will not be to compensate the seller for personal goodwill but to “teach” the buyer how to make that same pizza sauce and to protect the seller from stealing it post-sale. Absent these agreements, which clearly protect the value of the sauce, a buyer would have little incentive to purchase this pizza shop for anything more than the value of its tangible assets. Clearly, these agreements are to protect the trade secret and have nothing to do with the mom-and-pop shop owner, specifically.

In the simplest form, this example illustrates what occurs when expert business valuators are required to “assume away” any presence of these critical agreements. In estimating value of a business asset in a Florida dissolution of marriage, these experts are forced to impair their value, not just for personal goodwill, but for any intangible asset value of that business.

As in Kearney, many experts, having no alternative method, turn to the only credible valuation methodology: the “adjusted net asset value method.”[17] Resulting is a valuation without any intangible asset value, not simply personal goodwill.[18] In this scenario, there is potential for severe economic injustice for the nonpropertied spouse who is essentially forced to accept close to tangible net book value while the propertied spouse retains the entire difference.

The true inequity results when the nonpropertied spouse is only paid the net book value for a business that has true economic/enterprise goodwill and alimony is not properly awarded to the spouse to make up the difference. The propertied spouse is free to sell that business at full fair market value, post dissolution, sign a noncompete agreement, and realize all intangible value. That spouse could simply reinvest the net proceeds in any asset of comparable risk without impacting his or her post-divorce income.

As an illustration, consider the parties’ only marital asset and source of income is a business entity. The propertied spouse takes no salary from the business, and the business generates income equal to BV x ROIC (where BV equals the tangible net book value of the business at market value, and ROIC equals the company’s after-tax return on invested capital (assume no debt)). Currently, the law in a Florida dissolution of marriage states the propertied spouse would be required to payout one-half of the book value (or BV/2) to the nonpropertied spouse; alimony is determined based upon the pre-divorce need of the nonpropertied spouse and ability of the propertied spouse to pay. That ability to pay will be based on pre-divorce income, inclusive of business income, calculated as BV x ROIC.

The missing link this is failing to account for is that, post-divorce, the propertied spouse can sell the business at full fair market value by signing a covenant not to compete. This generates proceeds of BV x ROIC/WACC (i.e., value of the business under the income approach, assuming no growth) where BV x ROIC is defined as before, and WACC equals the firm’s weighted average cost of capital).

This example illustrates the inequitable outcomes that may occur. Strict interpretation the law may be causing unjust and inequitable outcomes for spouses in Florida dissolution of marriages.


Florida law regarding marital interests in business entities for distribution of assets in a dissolution of marriage places extreme hurdles for experts to provide competent, reliable testimony to assist the trier of fact in determining the value. The Supreme Court in Thompson found that goodwill must exist separate and apart from the owner-spouse’s reputation to be deemed a marital asset,[19] dictating that the fair market value method be utilized as the exclusive method for such value determination.[20] Florida courts have continued to follow the Thompson-mandated valuation method, with some variation, in an effort to achieve the most equitable result.[21]

All courts in Florida addressing the issue of personal goodwill consider the existence of such personal goodwill when one expert states a covenant not to compete and/or a transitional consulting agreement will be required in sale. Real-world transactions of closely held companies require a covenant not to compete or similar agreement.[22] These agreements are a necessity to convey these businesses to any buyer. This fact effectively renders experts unable to rely on and utilize the market value approach when presenting evidence of intangible value of a business.

The result can be an exploitation of the caselaw and real-world marketplace transactions to create an inequitable distribution for the propertied spouse. Simply arguing the existence of goodwill or claiming a covenant not to compete, or similar agreement in the sale would be required, can leave the court with no choice but to value the company based on the tangible net assets of that business entity only.[23]

By equating personal goodwill to a covenant not to compete, valuation experts are forced to value a business at tangible net asset value, even when such agreements may not indicate the existence of any personal goodwill at all. These covenants not to compete often protect intangible assets of a business, such as its trade secrets or other intellectual property, that exist completely separate from personal reputation. Experts often reach a valuation without any such intangible asset value. Unfair economic outcomes for the nonpropertied spouse can result, especially if sufficient alimony is not awarded to make up for the difference in value.[24]

It is clear that the Florida Supreme Court did not consider such an outcome when it cited “equity” as one of its primary motives in 1991.[25] The subsequent Florida cases have continued to create inequities attempting to comply with Thompson. A legal theory to deal with this scenario should possibly be considered to develop an economically sound and equitable outcome for both parties when a business asset must be valued for distribution of marital assets in a dissolution of marriage in Florida. Clearly, this requires some recognition by the Florida courts, that a covenant not to compete cannot be the end-all, be-all measure of personal goodwill.

Experts, practitioners, and judges in Florida should evaluate and assess the exact type of business involved and the real-world, market-based data for that industry when credibly presented by an expert in the valuation of closely held entities on a case-by-case basis. Florida courts should consider the facts unique to the case at hand and make a determination that is equitable, just, and fair to both parties.

[1] Pratt’s Stats, Business Valuation Resources, [hereinafter Pratt’s Stats].

[2] Id.

[3] See generally Weinstock, 634 So. 2d at 775; Held, 912 So. 2d at 637; Walton, 657 So. 2d at 1214.

[4] Pratt’s Stats, note 65.

[5] Id.

[6] In regards to intangible assets, the Financial Accounting Standards Board, Accounting Standards Coalition topic 805-10-55 provides a list of identifiable intangible assets. The lists includes 1) market-related, such as trademarks, noncompetition clauses, and internet domains; 2) customer-related, such as customer lists, contracts and order backlog; 3) artistic-related, like video and audio material, photographs, and literary product; 4) contract-based, such as royalty and licensing agreements, advertising, leases agreements, service contracts, and franchise agreements; and 5) technology-based, computer software, patented and unpatented technology, databases, and trade secrets. Robert F. Reilly, Intangible Asset Valuation Due Diligence, Prac. Law. at 51, 53 (Oct. 2013).

[7] Pratt’s Stats, note 65.

[8] Thompson, 576 So. 2d at 270 (the capitalization of earnings method is defined as the fair market value of what a willing buyer would pay a willing seller, neither acting under a duress, prescribed this method as the exclusive method of valuation).

[9] See Thompson, 576 So. 2d at 270.

[10] Walton, 657 So. 2d at 1215; Spillert, 564 So. 2d at 1146.

[11] Thompson, 576 So. 2d at 270.

[12] Kearney, 129 So. 3d at 393 (In this case, the business was a large IBM distribution company, generating in excess of half a billion in revenues with over 600 employees. IBM — not the former husband — directed every significant aspect of the business relationship.).

[13] Id.

[14] Id.

[15] Id. at 392.

[16] See generally Thompson, 576 So. 2d at 267; Weinstock, 634 So. 2d at 775; Walton, 657 So. 2d at 1214; Held, 912 So. 2d at 639.

[17] Kearney, 129 So. 3d at 390.

[18] Id.

[19] See Thompson, 576 So. 2d at 267.

[20] Id.

[21] For example, in Young, the Fifth District established that the first step is to establish the existence of goodwill, and the next step is to determine value. Outlining several types of evidence that would be considered credible, including direct evidence of a sale, an offer for the business, or expert witness testimony that the business has goodwill. See Young, 600 So. 2d at 1140. Yet, the court in Young did not explain what type of expert testimony would be considered credible, absent direct market evidence. Id. Then the Fifth District, in Weinstock, severely restricted an expert’s ability to utilize market-based evidence that involved a seller remaining with the business for a period of time after sale (i.e., an employment or transitional consulting arrangement). See Weinstock, 634 So. 2d at 775. The First District in Walton further limited an appraiser’s ability to utilize market-based evidence that depended upon the seller signing a covenant not to compete. See Walton, 657 So. 2d at 1214. This limitation was further expanded in the matter of Held, which deemed a noncompetition agreement similar to a nonpiracy/nonsolicitation agreement. See Held, 912 So. 2d at 637. Several other cases, such as Schmidt, 120 So. 3d at 31, and Williams, 667 So. 2d at 915, have made similar findings as to a covenant not to compete indicating the existence of personal goodwill.

[22] Pratt’s Stats, note 65.

[23] The most notable example of this being the case of Kearney, 129 So. 3d at 381, wherein a multi-hundred million dollar company was valued at hard asset value because a buyer would require the husband to sign a noncompetition agreement.

[24] The windfall is a direct function of the amount of goodwill (i.e., difference between ROIC and the WACC, as previously identified) that can be realized by signing a covenant not to compete and reinvesting the proceeds into an asset of comparable risk.

[25] Thompson, 576 So. 2d at 268.


Abigail BeebeAbigail Beebe is board certified in marital and family law. She is the owner of The Law Office of Abigail Beebe, P.A., a West Palm Beach-based marital and family law firm.




Joshua B. AngellJoshua B. AnGell CFA, ASA, CPA/ABV is the senior managing director of the Valuation Advisory Services and Litigation Practice Group of Ellrich, Neal, Smith & Stohlman, P.A., a valuation, consultancy, tax, and accounting services firm in Palm Beach Gardens.

This column is submitted on behalf of the Family Law Section, Amy C. Hamlin, chair, and Trish Armstrong, editor.

Family Law