Dividing Businesses and Professional Practices in a Florida Divorce
A professional license is not marital property and cannot be divided or taken during a divorce action. However, a professional practice, like a family business or closely held corporation, may be considered marital property and included in the marital estate for equitable distribution purposes. If the non-business owner/non-professional spouse makes a claim against his or her spouse’s business or professional practice, then the following issues must be addressed:
Characterization of the professional practice or business as marital or non-marital property: If a business or professional practice was established during the marriage, then generally speaking it will be considered a marital asset. The bone of contention in a divorce arises when a spouse makes a claim to the other spouse’s pre-marital business or professional practice. If the value of the business or practice increases during the marriage due to marital efforts or funds, then that increase in the value is itself a marital asset. Also, if the owner spouse co-mingles marital funds, assets or debts with the premarital business or if he or she co-titles the business with the non-owner spouse, then the business may very well lose its non-marital character. If a professional practice or business is determined to be marital or if the increase in its value is characterized as marital, then the next step in the analysis is to value the marital component of the practice or business.
Valuation of the business/practice or the increase in its value: Once it is determined that the professional practice or business is a marital asset or that it’s increase in value during the marriage is marital, then an expert business valuator must be retained to appraise this asset. Appraising businesses or professional practices for divorce purposes is very complicated as the expert must follow the Florida law on this issue as decided by the Florida Supreme Court and other appellate courts in Florida. The divorce attorneys at the Rice & Rose Law Firm are well versed in this law and can work with the appraising expert to make sure there is a proper valuation of the business or practice. Our experienced attorneys are familiar with the various experts, including accountants and certified business appraisers, in Florida, and we can assist our clients with selecting the best possible expert, while making sure our clients do not over pay for said expert.
Enterprise Versus Personal Goodwill. While a business or professional practice may own tangible assets such as its office building, equipment, inventory and accounts receivable, the biggest component of a its value may very well be its goodwill. Goodwill is the monetary value by which a business or practice exceeds its tangible assets. Goodwill often consists of both enterprise goodwill and personal goodwill. Enterprise goodwill is determined by the tendency of a customer or patient to return to or recommend the business or practice, irrespective of the reputation of the business owner or professional. The reputation of the business owner or professional is considered personal goodwill. Florida courts have held that personal goodwill is simply the owner or professional’s future earning capacity and therefore not a marital asset subject to equitable distribution. Enterprise goodwill, however, is a marital asset and must be valued and included in the marital estate for distribution.
Options for Distributing Marital Business or Practice. There are different options available to spouses when a business or professional practice is subject to equitable distribution in a divorce. The divorce attorneys at the Rice & Rose Law Firm will determine what options are available to you and work with you to decide what is best in your particular case. In some cases, a spouse may opt to exchange an interest in the business for a larger share of other marital assets. Another scenario is when a spouse opts to buy out the other spouse’s share of the business. Yet another possibility involves the sale of the business to a third party and dividing the proceeds from the sale between the parties according to their marital versus non-marital shares. We will vigorously pursue the outcome that is in your best interest.
In divorce cases involving businesses or professional practices, accurate asset characterization and valuation is of the utmost importance in ensuring that the parties’ interests are protected. The divorce attorneys at the Rice & Rose Law Firm will work to insure that your property is properly defined and protected.