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More than a quarter century has elapsed since the landmark Indiana Supreme Court decision in Yoon v. Yoon, 711 N.E.2d 1265 (Ind. 1999), distinguishing personal goodwill from enterprise goodwill in divorce cases.
Yoon succinctly held “that goodwill that is attributable to the business enterprise is divisible property, but to the extent that the goodwill is personal to the professional or business owner, it is a surrogate for the owner’s future earning capacity and is not divisible.”
The supreme court defined “goodwill” as “the value of a business or practice that exceeds the combined value of the net assets used in the business.”
Personal goodwill, the supreme court observed, “represents nothing more than the future earning capacity of the individual and is not divisible.” Conversely, enterprise goodwill, according to the supreme court, is “the intangible, but generally marketable, existence in business of established relations with employees, customers and suppliers.”
But is this distinction really that simple? Recent developments in Florida recall a notable Wisconsin case and contemplate a possible reconsideration of the true nature of personal goodwill.
In McReath v. McReath, 800 N.W.2d 399 (Wis. 2011), the Wisconsin Supreme Court upheld the inclusion of salable enterprise and personal goodwill of an orthodontic practice as marital property.
The opinion implies that salable goodwill includes enterprise goodwill as well as transferrable personal goodwill, eliminating the need to specifically identify enterprise goodwill when deciding the portion of total goodwill includable in a marital estate. In essence, in fair market value jurisdictions salable personal goodwill is part of the fair market value of entities being valued.
Other states have not adopted that methodology, and to do so would violate the Indiana precept enunciated in Yoon and prior precedent that future earnings are not marital property. McReath also begs the question of whether transferrable or salable personal goodwill really is personal at all.
Although McReath sat relatively quietly for over a decade, Florida resurfaced with several twists on it in companion cases decided on June 21, 2024. In Rosenberg v. Rosenberg, 391 So. 3d 975 (Fla. Dist. Ct. App. 2024), the Florida Court of Appeals concluded that the personal goodwill of all anesthesiologists in a multi-member practice was not marital property and was not to be considered in divorce cases. In this case, the physician’s expert excluded the personal goodwill of all 34 physicians in his practice valuation.
In Conde-Berrocal v. Conde, 391 So. 3d 518 (Fla. Dist. Ct. App. 2024), involving a physician in the same practice, the Florida Court of Appeals concluded that personal goodwill and future income were so intertwined that the entire value of the marital practice buyout was not marital property. In this case involving different evidence and statements of the issues, the experts’ methodologies did not require the exclusion of personal goodwill of the other physicians
These differing opinions sent shockwaves throughout Florida and received notoriety nationally. On July 1, 2024, with legislation signed prior to the two appellate opinions, the Florida Legislature enacted amendments to Fl. Stat. 61.075 which established “fair market value” as the standard of value for closely held businesses and set forth specific provisions for valuing a closely held businesses.
The statute enunciates that enterprise goodwill is goodwill separate and distinct from the continued presence and reputation of the owner spouse that is a marital asset. Likewise, under the statute trial courts are to consider evidence that a covenant not to compete or other restrictive covenant that may be required upon the sale of a closely held business does not preclude a trial court from finding enterprise goodwill.
What is less well known is that, after issuance of the two appellate opinions, amendments offered to define personal goodwill and allocate the burden of proof to the owner seeking to exclude personal goodwill. Those efforts were unsuccessful. Regardless, the resulting Florida equitable distribution statute is the most detailed legislative regime on goodwill in the United States and exceeds the detail in the Louisiana and Kansas statutes which focuses on personal attributes.
So where does salable goodwill, McReath, the Florida drama, Louisiana, and Kansas leave Indiana and Yoon? Exactly where it was.
Indiana has a unique common law regime. Personal goodwill is not marital property in Indiana. Salable or transferrable goodwill, as a practical matter, is not different from the Yoon definition of personal goodwill. The goodwill of other owners and professionals is not personal goodwill.
Despite the hoopla, debates among valuation analysts, theoretical jousting, legislative involvement, and inconsistent arguments, personal remains personal under Indiana law. Rosenberg, Conde, and the Florida Legislature comport with Indiana law on goodwill and future earnings.
As the Indiana Supreme Court in Yoon declared: “The goal in dissolution, however, is not to value the business (including the professional) for a buyer. Rather, it is to identify the portion of the value that is attributable to the business without the professional’s continuing participation.” No reassessment is needed. Indiana got it right the first time and still has it right in 2025.•
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Andrew Z. Soshnick is a partner in the Indianapolis office of Faegre Drinker Biddle & Reath LLP. He is a past chair of the Indiana State Bar Association Family & Juvenile Law and Indianapolis Bar Association Family Law Sections. Opinions expressed are those of the author.
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