There was an informative article by Jason Soman, CPA/ABV, CFE, ASA, CDFA in the Florida Family Law Section Newsletter titled “Personal Goodwill: You Can’t Pour from an Empty Cup.” In the article it states that in determining Good Will, a business must first determine if the business has Good Will. Good Will is an intangible asset representing future economic benefits arising from a business or a group of assets that are not individually identified or separately recognized. Good Will may arise as a result of name recognition, reputation, customer loyalty, location, and products, among other factors.
Good Will is typically reflected in excess earnings generated above and beyond a fair return on identified assets. In other words, the total value of a business must exceed the value of its identifiable net assets before Good Will can exist. Often, the total value of a business, including any resulting goodwill, is determined by using a market-based or income-based approach to valuation.
Florida Statute 61.075 provides that the standard of value of a closely held business in a Florida divorce is Fair Market Value, which means the price at which property would change hands between 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.
A business valuation under the Fair Market Value standard must measure three things from the perspective of a willing and able buyer and seller (1) expected economic benefits (2) the risk of achieving those economic benefits and (3) the expectation of growth in those economic benefits.
It must answer the question of what the business is worth. If you hire a business valuator, they must address numerous issues including (1) Are owners paying themselves a fair market wage? (2) Are there any economic benefits that are not expected to recur? (3) Is the risk of the business disproportionately dependent on the continued involvement of the owners, key employees, major customers, or critical suppliers?
If you have more questions regarding a Marital and Family Law matter, you may call Ann Marie Giordano Gilden at Ann Marie Giordano Gilden, P.A. at 407-732-7620 and arrange an initial consultation. You may also visit my website at: https://www.annmariegildenlaw.com
This article is for informational purposes only and does not form an attorney client privilege.