Posted by Nydia Streets of Streets Law in Florida Divorce
In valuing a spouse’s goodwill in a business entity, there are multiple ways to approach the issue. Sometimes, future compensation is a consideration when a corporate interest is sold. This was an issue in the case Conde-Berrocal v. Conde, 5D2023-0449 (Fla. 5th DCA June 21, 2024).
In this divorce case, the wife was a member of a multi-member medical practice. The practice was sold, and the wife received a lump sum payment. Both parties presented the testimony of experts at trial to discuss the value of the wife’s personal goodwill and future earnings. The wife’s expert gave testimony regarding future earnings for which the wife was compensated in the deal, and the trial court agreed with her expert. The husband appealed, arguing it was error to award this to the wife. The wife’s expert “opined that [the wife] had personal goodwill and lost future earnings above and beyond the $25,000 payment because large transactions of this type are often structured to allocate taxes in a favorable way. For example, the $25,000 was likely a ‘relatively small part’ of the overall goodwill, and perhaps the ‘minimum amount possible,’ because the payment ‘would be treated as ordinary income’ while the ‘sale of goodwill is treated as a capital gain’ resulting in ‘a substantial difference in tax treatment.’”
The appellate court held “Because personal goodwill and lost future income are so closely intertwined, and difficult or impossible to separate, it was not improper to conclude that the entire value of [the wife’s] proceeds from the NFAC buyout was non-marital.” The court concluded on this issue “Next is the question of the validity of [the wife’s expert’s] method. It is a close one, but we conclude that his allocation of 15% (9/60ths) of the value of the entire NFAC proceeds to [the wife] post-filing was a reasonable means of estimating a fair allocation under the circumstances. [the wife’s expert] admitted that methodologies, other than the one he used, exist; [the husband’s expert] identified two that he deemed acceptable (neither used by [the wife’s expert]); and [the husband’s expert] relied solely on the Restrictive Covenant Payment. But the question is whether the calculation in this specific case meets applicable standards under the facts presented. [internal citations omitted]. Though the method used was not analytically rigorous and involved a degree of professional judgment, it was not arbitrary to draw the line of division at the date the petition was filed, a typical marker in assigning marital/non-marital assets. The methodology is legally adequate under both Thompson and the competent substantial evidence test to establish an equitable apportionment. We note that differences in methodologies, such as those in this case and Rosenberg, are permissible so long as the underlying foundation is based on a fair market value approach.”
The court also discussed why it reversed an award of attorney’s fees to the husband where the wife argued his equitable distribution and alimony were sufficient to cover his own fees. Schedule your meeting with a Miami divorce lawyer to understand your rights and remedies in proceeding in your case.