Hunting for Good Will
By: Mike Gora
Q: I am a single practitioner dentist, and have been practicing for several years. I am not of retirement age, and have no current intent to sell my practice. My wife of 20 years and I are divorcing. Our only child is in college. My wife, a C.P.A., works for a large accounting firm, but is not a partner. The value of my dental practice is the only disagreement we have left to settle.
My attorney and forensic accountant tell me that there is little chance that my practice will be worth more than a few thousand dollars for distribution purposes. They believe the correct amount would be the “book value”, the value of my business’ hard assets and receivables over business debt. I don’t have much in receivables, and my equipment is leased.
I know that I can sell the practice for about a $1.5 million, but, I would have to sign a long non-compete agreement, or at least an agreement not to solicit my existing patients. My wife would like one-half of the “million-five” distributed to her. What do you think?
A: Based on a history of decisions in Florida Appellate Courts over the last 15 years, I would agree with your professionals.
In Florida, personal good will in a business or professional practice is not a marital asset. Personal goodwill is defined as the amount of money a business is worth over “book value”, as you defined it.
Florida appellate courts have ruled that the value of your practice must be based on a sale which does not require that you stay in your practice, and would not have to sign a non-compete agreement.
Our appellate courts has been asked if an agreement not to solicit one’s patients, but not a full agreement not to compete, also disqualified comparable sales from being used in an evaluation.
The court said there was no difference, that an agreement binding a seller not to solicit his clients or patients was virtually the same as a non-compete. The court sent the case back to the trial court to determine the “book value” of the business. The original case, which led to this conclusion, involved a law practice.
Some lawyers and accountants originally thought that the case law did not apply to businesses, other than the professional kind. However, over the years these rules have been applied to small businesses in addition to professional practices. Business valuation specialists will, doubtlessly, try to create exceptions to this rule, and may, eventually be successful.
Michael H. Gora has been certified by the Board of Specialization of The Florida Bar as a specialist in family and matrimonial law, and is a partner with Shapiro Blasi Wasserman & Gora P.A. in Boca Raton. Mr. Gora may be reached by e-mail at firstname.lastname@example.org.