Experienced Miami Attorneys Manage Division of Goodwill in Divorce
Knowledgeable counsel protects your business interests following the breakup of your marriage
Couples who own and operate businesses together face unusual challenges when dividing assets during divorce. Can they continue joint ownership and management? Can one become a silent partner while the other assumes full responsibility for running the business? Should they sell the business and divide the profits? Or should one spouse buy the other out? The latter is the most common result, but it also presents difficulties in the valuation of business assets and their equitable distribution. Among these assets, the business’s goodwill is a particularly thorny subject. Fortunately, Rafool, LLC is fully prepared to handle such complex business issues. We understand the value of intellectual property, how to protect it, and how to preserve your rights for the future.
What is business goodwill?
Business goodwill is an intangible asset comprising a good reputation and customer loyalty. It is the product of many factors, including the unique inspiration for the business, the successful execution of the business, and perhaps the association with particular personalities. This asset is part of the business’s intellectual property, like its trademark or service mark. Florida law refers to “enterprise goodwill” as “the tendency of clients/patients to return to and recommend the practice irrespective of the reputation of the individual practitioners.”
Goodwill is an important consideration when owners sell a business. The buyer often wants assurances that the departing owner will not diminish the value of the business’s goodwill by going into competition. Sellers do not want to lose their right to profit from their reputation.
Goodwill is part of the valuation of the sale of the business. It is a separate line item from more tangible assets such as the lease of the premises and the inventory. Goodwill is taxed differently from the sale of hard assets, so any final sale agreement must consider the tax implications.
Is business goodwill a marital asset?
During divorce, business goodwill is subject to the same analysis as any type of marital or nonmarital property to determine whether it belongs in the marital estate (and is subject to equitable distribution) or it is the separate property of one of the spouses. Here are three basic scenarios:
- A married Miami celebrity opens a restaurant under his name. The business is strongly themed around his career. He and his wife often appear together at the restaurant, where the owner actively greets patrons and makes sure they are satisfied with service. The spouse is visible at the establishment on many occasions, but is never on the payroll and rarely takes the initiative with customers.
- A Miami celebrity opens a restaurant which does fairly well, until he marries and his wife takes an active hand in running the place. Under her guidance, the restaurant takes off, and even though she is never on the payroll, the public begins to associate the restaurant with her as much as him.
- A Miami power couple buys a restaurant that they own jointly and manage together. The public perceives the restaurant as a jointly owned establishment.
In the first scenario, the husband could argue that although the restaurant itself is marital property, the business goodwill is part and parcel of his professional or personal goodwill, making it a separate asset and not subject to equitable distribution. In the second scenario, the wife could argue that even if the restaurant started out as the separate property of the husband, her participation “commingled” the asset, making it marital property. She can also argue that she deserves a greater share of the goodwill than he does. However, the husband could counter that even though she has been responsible for the restaurant’s success, the entity itself enjoys goodwill, not her personally. Finally, in the third scenario, the restaurant and its goodwill are marital assets subject to equitable distribution.
The major issue to decide is whether the goodwill belongs to the enterprise or is personal to a participant in the enterprise. This is a fact-intensive inquiry for the court and can be costly to litigate. However, the issue can be vitally important to a party’s future business rights, including the right to market one’s own image and likeness for business purposes.
Because of the complexities involved with this business issue and its long-term implications, you should only trust you case to a knowledgeable family law attorney who has experience handling celebrity and high-net-worth divorces.
To protect your business assets in divorce, schedule a consultation at our Miami office
Rafool, LLC protects the full spectrum of your business rights during the divorce process, as we work for optimal results. Call us at (305) 567-9400 or contact our Miami office online to schedule a consultation.