Personal vs. Entity Goodwill in Florida Divorces

Adam Magill

2 days ago

2 min read

In our latest short video, Adam T. Magill, MBA, CBA, CVA, MAFF, explains goodwill and why the split between personal and entity goodwill matters so much when a business is part of a Florida divorce.

https://www.youtube.com/watch?v=qcYMeCu8YTM

What is goodwill?

Goodwill is an accounting concept: the difference between what a business is worth (or what was paid for it) and the value of its assets. For example, if a company is valued at or sells for $1 million and its assets are worth $600,000, the $400,000 difference is goodwill.

Two kinds of goodwill in Florida family law

Florida family courts split goodwill into two components:

Professional or personal goodwill: value tied to the owner personally, such as their reputation, referral base, and presence in the business. This is a non-marital asset and is not divided.
Entity or enterprise goodwill: value that belongs to the business itself and would remain without the owner. This is part of the marital value.

To separate the two, you have to consider what the business would be worth without the ongoing reputation, referral base, and presence of the owner who is going through the divorce. When the law on business valuations in Florida divorces changed in July 2024, it became essential to account for both the full enterprise value and the professional personal goodwill value.

How personal goodwill is measured

There is no single required method. The two most widely used are:

The with-and-without method: compares how the business would perform with the owner and without them under a new owner. Its weakness is that it can be speculative, because it requires assumptions about a future without the owner.
The key person discount: relies on historical data about normal attrition when a company loses a key person, and how it recovers.

From goodwill to equitable distribution and support

Whichever method is used, the personal goodwill is valued and subtracted out, and what remains becomes the marital value for equitable distribution. You also have to consider how much income the business generates that is available for support. All of this takes competent evidence from someone experienced in the field who can provide the data and testimony, whether the case goes to court or is resolved through mediation or settlement.