Business valuations during a divorce are of vital importance to all parties involved. Typically, someone buying a business does not want the new owner creating another business that opens down the same street. That would siphon away business! A non-competition clause is something that’s put in place so a seller cannot open a new business for a certain period and within a specified geographic area. But asking for a non-compete clause has some implications which can affect how much the seller could walk away with. Arturo R. Alfonso P.A. has family attorney services that can help you work through a collaborative divorce.
What Personal Goodwill Means to a Family Attorney
When evaluating a business, a component of personal goodwill is included. In this instance, personal goodwill is like social capital. It is the amount of revenue generated because of a particular person associated with the business. If that person is no longer there after a divorce in Miami, they take some of the value with them.
People argue that a buyer that requires a non-compete clause suggests that there is a level of personal goodwill associated with the valuation of the business in the hands of the seller. Florida case law supports this idea. This assumption is usually very valid if the company is a professional practice such as a law office, therapist, or dentist. The value of these businesses are almost entirely wrapped up in the person whose name is on the door, so to speak.
Valuing Non-Competition Clauses and Personal Goodwill
Now, how to place a monetary value on personal goodwill in a non-compete clause. Because there is no way to definitively know how much personal goodwill someone has, it is a good practice to ask the question a few different approaches when working through a divorce in Miami.
One way to consider how much an individual’s presence is intrinsic to the businesses’ value is to estimate how much income the departing person would take with them via future business (clients, close relationships, etc.) Another perspective would be to think about how much the buyer of the company is willing to pay for the non-competition clause.
Collaborative Divorce and Valuation
Many agree that a Collaborative Divorce approach to family law cases is a much better experience than a litigated, adversarial approach. Some describe the collaborative divorce in Miami as that of spouses talking together, and subjective decisions about how to evaluate the company are made with all parties involved.
Compare that to litigation where each spouse brings in their own valuation expert. These experts come in with different values and viewpoints; each side becomes increasingly distrustful of the other as negotiations proceed.
The collaborative divorce process works more quickly and smoothly and costs less for each party. What is almost more important than how much everyone walks away with is how they feel when the divorce is all over. Everyone wants to feel treated fairly.
Don’t go into divorce negotiations without a proper strategy. Especially if you and a significant other are evaluating a shared business. Arturo R. Alfonso P.A. is a family attorney well versed in Miami Law. Call (305) 266-9584 or click today for a 15-minute strategy consultation.