I have several clients that own their own businesses that have been involved in a divorce. Marital property is subject to equitable distribution in Florida. Marital property includes assets or businesses that were started during the marriage. There are several cases setting out how Florida courts handle these types of distributions. Generally when one party has no experience or qualifications to run a business, it should be awarded to the party with the necessary experience.
Division of Interest in a Florida Corporation
In the Cohen case, Mr. Cohen’s shares of stock represented 18.14 percent of the stock of a farm and ranch corporation. Mr. Cohen’s minority interest was determined to be worth approximately $1,500,000. The Court reasoned that to award Mrs. Cohen a portion of this stock in kind would not be of any immediate or possible future benefit to her. The corporation does not pay dividends, and it is totally an effort headed by Mr. Cohen’s father and mother and shared in by all their children, all of whom do active work each day in the furtherance of the corporation’s business. To inject an outsider — especially an ex-spouse of one of the family members – would be unfair to other stockholder members of Mr. Cohen’s family and to appellant Mrs. Cohen herself.
Nevertheless, in reaching a just and equitable award, the fact remains that due to the way the parties to this marriage lived during the marriage, they did not acquire a house or a car or any property a married couple of 16, with above average assets, would be expected to acquire. We must consider that particular situation in this case.
As representing a minority interest in a closely held, strictly family corporation, the valuation of $1,500,000 set out above would be unreasonably high. What Mr. Cohen really owns, as reflected in his shares of stock in the family corporation, is an expectancy interest in a large farming and ranching operation. Accordingly, Mrs. Cohen was awarded the sum of $100,000 as division of property under the particular facts of this case. Such amount is payable at the rate of $10,000 per year, with interest as provided under Florida law.
Expectations of Income
The income of many businesses that sell a service is entirely based on the individual selling those services. That value of the business is more based on the expectation of income. And that expectation is based on the individual continuing to provide the service.
Valuation of the Goodwill of a business in a Florida Divorce
Florida law has held that where goodwill is a marketable business asset distinct from the personal reputation of a particular individual, as is usually the case with many commercial enterprises, that goodwill has an immediately discernible value as an asset of the business and may be identified as an amount reflected in a sale or transfer of such business. On the other hand, if goodwill depends on the continued presence of a particular individual, such goodwill, by definition, is not a marketable asset distinct from the individual. Any value which attaches to the entity solely as a result of personal goodwill represents nothing more than probable future earning capacity, which, although relevant in determining alimony, is not a proper consideration in dividing marital property in a dissolution proceeding.
Florida law has held that there is a disturbing inequity in compelling a professional practitioner to pay a spouse a share of intangible assets at a judicially determined value that could not be realized by a sale or another method of liquidating value. Thus, goodwill must be a business asset with value independent of the presence or reputation of a particular individual, an asset which may be sold, transferred, conveyed, or pledged. In so characterizing goodwill as marital property, of Florida law, neither states nor implies that goodwill, as a salable or marketable business asset, many never exist in a professional practice. If a party produces appropriate evidence establishing salability or marketability of goodwill as a business asset of a professional practice, professional goodwill may be considered in determining value of property in a marital estate to be divided in a dissolution proceeding.
Generally, professional qualities of a practitioner are often critical to the existence and continuation of professional goodwill. Professional goodwill may be personal in nature and, therefore, not a readily salable or marketable item. Under such circumstances goodwill has no existence independent of the professional generating that goodwill. The wife’s expert acknowledged that in a sale of the husband’s practice, the purchasing physician would require some postsale association with the selling physician for introduction and transition of the existing patients to the purchasing physician. In that case, return of patients would be reasonably attributable to the Seller’s presence after the sale and prospects of personal care and treatment from the Seller. Because the goodwill for the Seller’s professional business depended on the Seller’s continued presence, there was held to be a serious question whether goodwill, in its true sense, existed in the present case. The opinions expressed by the expert witnesses, albeit diametrically opposed, results in a question of fact to be resolved. The Florida court would then hear the evidence and perhaps would find more credibility with one and not the other.