In early July 2024, Florida enacted a significant amendment to its equitable distribution statute, particularly concerning the treatment of personal goodwill in divorce proceedings.[1] These changes, coupled with the pivotal case of Rosenberg v. Rosenberg,[2] have profound implications for divorce settlements both within Florida and potentially across the United States.
Understanding Goodwill in Divorce Proceedings
Goodwill represents the intangible value of a business beyond its tangible assets, often linked to reputation, customer loyalty, and other intangible factors. In the context of divorce and equitable distribution of assets between spouses, many courts distinguish between “enterprise goodwill” and “personal goodwill.”[3]
While enterprise goodwill is attributable to the business entity itself, independent of any individual’s personal attributes, personal goodwill is tied directly to an individual’s personal skills, reputation, and relationships.
This distinction is vital because, in many jurisdictions, enterprise goodwill is considered a divisible marital asset, while personal goodwill is not.[4] Much of this distinction has been decided via the common law — by judges issuing decisions outlining which pieces of the businesses at issue are truly assets of the business –— and therefore subject to equitable distribution, as opposed to those that are personal as to the owner — who has a right to continue to work after the divorce is done. Florida’s legislature, however, has recently taken the issue into their own hands.
Florida’s New Statute
Beginning July 1, 2024, the Florida Senate specifically amended their equitable distribution statute to exclude personal goodwill from equitable distribution in divorce. Specifically, the statute focuses the definition of “marital assets and liabilities” to include only:
“f. The marital interests in a closely held business. The court shall determine the value of the marital interests in a closely held business as follows:
(I) The standard of value of a closely held business is fair market value. For purposes of this sub-subparagraph, the term “fair market value” means the price at which property would change hands between a willing and able buyer and a willing and able seller, with neither party under compulsion to buy or sell, and when both parties have reasonable knowledge of the relevant facts.
(II) If there is goodwill separate and distinct from the continued presence and reputation of the owner spouse, it is considered enterprise goodwill, which is a marital asset that must be valued by the court.
(III) The court must consider evidence that a covenant not to compete or a similar restrictive covenant may be required upon the sale of the closely held business, but such evidence alone does not preclude the court from finding enterprise goodwill.”[5]
This is a far cry from the prior statute, which defined Marital Assets and liabilities as generally including:
“a. Assets acquired and liabilities incurred during the marriage, individually by either spouse or jointly by them.
b. The enhancement in value and appreciation of nonmarital assets resulting from the efforts of either party during the marriage or from the contribution to or expenditure thereon of marital funds or other forms of marital assets, or both.
c. The paydown of principal of a note and mortgage secured by nonmarital real property and a portion of any passive appreciation in the property, if the note and mortgage secured by the property are paid down from marital funds during the marriage. The portion of passive appreciation in the property characterized as marital and subject to equitable distribution is determined by multiplying a coverture fraction by the passive appreciation in the property during the marriage.”[6]
Florida’s statutory change follows the District Court of Appeal’s holding in Rosenberg v. Rosenberg[7], in which the court held that, as a matter of first impression, the personal goodwill of members of a multi-member medical practice is to be excluded in calculating net value of sale of practice in a divorce. The matter had originally started when Plaintiff Former Wife had moved to vacate the entry of a consent judgment in the parties’ divorce proceedings upon her discovery that the Defendant Former Husband had not disclosed the sale of his interest in a multi-member medical practice. While Florida courts had previously determined that personal goodwill in an individually held medical practice was not subject to equitable distribution, they had never ruled upon how that would apply to a multi-member practice such as the one presented in Rosenberg. The Court of Appeal specifically stated that “What is evident in the caselaw, and what decides this case, is that personal goodwill of a professional is simply not a marital asset in Florida. Personal goodwill, whether it be that of a divorcing spouse or any one of thirty-four physician/shareholders in a medical practice, is ‘not a marketable asset distinct from the individual’ who performs services.”[8]
The court’s decision in Rosenberg underscores the complexity of accurately distinguishing and valuing personal versus enterprise goodwill, especially in professional practices where individual reputations significantly contribute to overall business value. The fact that the court chose to expand what had been an analysis of individually held personal goodwill in an individual medical practice to the personal goodwill of multiple partners in a multi-partner entity invites subsequent divorcing parties to ask the court to make similar analyses across all professions. This exponentially expands the potential for exclusion of value from the marital estate and the complexity of professional practice valuations in the context of divorce litigation to occur in Florida family courts going forward. The legislature’s amendment of the definition of marital assets and liabilities following this decision provides some standards in this process, and further consistency in divorce proceedings involving business valuations going forward.[9] The Florida Legislature seems to be trying to ensure that only the business’s intrinsic value, separate and independent from the owners’ personal skills, attributes and reputation, is subject to division.
Implications for Divorce Proceedings Nationwide
Although Florida’s legislative amendments and the Rosenberg decision will not have an immediate effect on those going through divorce in other states, the legislature’s actions may influence other states in several ways.
For example, other jurisdictions might codify distinctions between personal and enterprise goodwill, and carve out exemptions from equitable distribution via legislative action, leading to more uniform approaches in divorce settlements.
Additionally, those conducting valuation of businesses in the context of divorces may decide to place a larger emphasis on an analysis of personal goodwill, prompting possible updates to business valuation practices in divorce contexts nationwide.
Finally, while Florida’s decisions are not binding out of state, they may serve as persuasive authority in states lacking clear guidelines on goodwill division. A practitioner representing a member of a multi-partner entity, in which the reputation and skill of multiple partners is a significant driver of revenue has precedent to press for a broad analysis of personal goodwill, which could significantly increase the amount excluded from the marital estate.
Florida’s recent statutory amendments and the Rosenberg decision highlight the evolving landscape of divorce law concerning business valuations. By clearly delineating between personal and enterprise goodwill within their statutes, the Florida Legislature presses to tighten definitions of what is and is not subject to equitable distribution. Despite the move toward standardized treatment of goodwill in divorce proceedings, Florida courts — and those in other states — still leave ample room for skilled attorneys and business valuation experts to advocate effectively for their clients.
[1] Fl. Stat. § VI.61.075(6)(a)(1) (2024).
[2] 2024 WL 3076490 (Fla. App. Ct. June 21, 2024)
[3] See, e.g., Moretti v. Moretti, 776 A.2d 925 (R.I. 2001) (distinguishing between personal and enterprise goodwill); Eslami v. Eslami, 591 A.2d. 411 (Conn. 1991) (distinguishing personal from enterprise goodwill and holding the valuation of enterprise goodwill must be determined on the basis of the price a willing buyer would pay in excess of tangible assets); Goldman v. Goldman, 554 N.E.2d 860 (Mass. App. 1990). But see Dugan v. Dugan, 457 A.2d 1 (N.J. 1983) (finding no distinction between personal and enterprise goodwill, both are marital subject to equitable distribution); Sneed v. Johnston, 902 S.E.2d 28 (N.C.App. 2024).
[4] In re Watterworth, 821 A.2d 1107 (N.H. 2003) (holding that enterprise goodwill is marital but personal goodwill is not); Moretti v. Moretti, 776 A.2d 925 (R.I. 2001); Ahern v. Ahern, 938 A.2d 35 (M. Sup. Ct. 2008).
[5] Fl. Stat. § VI.61.075(6)(a)(1) (2024).
[6] Fl. Stat. § VI.61.075(6)(a)(1) (2018).
[7] 2024 WL 3076490 (Fla. App. Ct. June 21, 2024) (emphasis added).
[8] Id. (citing Thompson v. Thompson, 576 So. 2d 267, 270 (quoting Taylor v. Taylor, 222 Neb. 721, 386 N.W.2d 851, 858 (1986)) (emphasis added).
[9] That said, the court did not explicitly address the holding in Rosenberg that sweeps the personal goodwill of multiple partners to a practice into the zone of exclusion from the marital estate, nor does it flush out the details of instances in which a non-compete alone might not preclude a court from finding enterprise goodwill.
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