Non-compete in a funeral home sale: what it restricts and how far it can reach

In a funeral home, much of the price pays for something that lives in people’s heads: the families who called this firm for a grandmother and will call it again for a father. They often know the seller by first name. If that seller opens a chapel two miles away, the goodwill walks out with them.

The non-compete is the buyer’s protection against that, and for the seller it is a real limit on what they and their family can do next. This page defines the term and shows how its scope gets set. For how it fits with your post-sale job, see our guide to employment and consulting agreements for selling directors.

Why does a non-compete matter more in a funeral home sale?

Because funeral goodwill is local, personal, and slow to rebuild. A family’s choice of funeral home often follows a person and a surname, so a buyer without a covenant is exposed in a way a buyer of a dry cleaner is not.

The seller is usually a licensed director who could legally reopen tomorrow, and preneed contracts and church ties give them a ready list of families. That is why buyers in our experience treat a missing or weak covenant as a price issue, not a drafting detail, and why the covenant sits beside price and structure on the short list of terms in our owner’s guide to selling.

What does a funeral home non-compete restrict?

Five elements define it: who is bound, which activities are barred, where, for how long, and which related promises ride along. Each one has a funeral-specific trap.

The covenant normally appears in the asset purchase agreement or a separate agreement signed at closing. A second, narrower covenant often sits in the seller’s consulting or employment contract. Keep the two distinct, with their own end dates.

Is a funeral home non-compete still enforceable after the FTC rule?

Yes, if state law allows it, and most states are friendlier to sale-of-business covenants than to employee ones. The federal rule that alarmed many owners never took effect.

The FTC adopted a broad ban on worker non-competes in 2024, but its own text carved out sales. Section 910.3(a) of the final Non-Compete Clause Rule said the ban did not apply to a covenant entered into “pursuant to a bona fide sale of a business entity” or of “all or substantially all of a business entity’s operating assets.” A federal court then held the FTC lacked authority, and on Sept. 5, 2025 the Commission voted 3-1 to dismiss its appeals and accede to vacatur of the rule. State law governs.

State law varies widely. Two examples show the range:

• Florida. Florida Statutes § 542.335 requires the covenant to be in a writing signed by the person bound and supported by a “legitimate business interest,” which expressly includes goodwill tied to a trade name or “a specific geographic location.” For a covenant against the seller of a business, courts presume 3 years or less reasonable and more than 7 years unreasonable. Employee covenants get far shorter presumptions.
• Minnesota. Minn. Stat. § 181.988 makes a covenant not to compete in an employment agreement “void and unenforceable,” and its definition of employee includes independent contractors. It allows a “temporary and geographically restricted” covenant agreed during the sale of a business.

The Minnesota rule has a practical consequence. A covenant buried in the seller’s consulting agreement may be void, so the protection has to live in the sale documents. Before relying on either pattern, check your own state with your attorney and read our Florida or Minnesota page where it applies.

How should the radius and term be set?

From the firm’s own records. The territory should cover where the families the buyer is paying for actually live, and the term should cover the time it takes for their loyalty to transfer to the new owner.

1. Pull three years of case records and note the decedent’s home address or ZIP code for each call.
2. Measure distance or list towns. Group calls by distance band from each location, or simply by town or county.
3. Find the coverage point. Note the smallest radius or town list that captures most of the calls; buyers and sellers often settle around the band holding the large majority.
4. Add the preneed register. Plot where preneed purchasers live, since those families are future calls.
5. Set the term against the transition. Match it to the consulting period plus enough time for the community to know the new owner, and stay inside your state’s presumptions.
6. Write named places, not only miles. A county or town list is easier to apply than a circle.

How do sellers, buyers, and lenders each use the non-compete?

The buyer uses it to protect goodwill, the seller uses it to preserve future options, and the lender reads it as part of the collateral story. Each pushes on a different element.

Buyers want breadth: every family member, every deathcare activity, a wide radius, a long term. Consolidators often start with a standard form; our guide to judging whether a consolidator offer is fair shows how covenant terms fit into the full offer.

Sellers want precision. Name the people bound, carve out teaching, church service, state board work, and a spouse’s unrelated career, and tie the territory to real call data. Carve out any cemetery or monument business you keep.

Lenders see a loan secured largely by goodwill. Under SBA rules, a seller in an initial acquisition may stay on only as a consultant for up to 24 months, so the lender wants assurance that the seller will not compete once that period ends. In our experience, lenders ask to see a signed covenant before closing.

How is the non-compete taxed and reported?

Payments for the covenant are generally ordinary income to the seller, and both sides report the allocation to the IRS. The buyer gets no faster write-off for calling money a covenant.

Under 26 U.S.C. § 197, a covenant not to compete entered into with the acquisition of a business is a section 197 intangible, amortized over 15 years, the same period as goodwill. Both parties file Form 8594, and the IRS instructions for Form 8594 ask whether the deal includes a covenant not to compete or similar agreement and the maximum amount paid under it. The full allocation picture is in our guide to taxes on selling a funeral home. Talk to your CPA before you agree to a number.

What mistakes do owners make with funeral home non-competes?

Most come from treating the buyer’s first draft as standard:

• Binding relatives who receive nothing. A covenant on a non-owner child is weaker legally and harder to justify.
• Letting the job covenant restart. Termination of your consulting role should never begin a fresh restricted period.
• Ignoring the no-solicit clause. Promising not to contact preneed families can limit ordinary social life in a small town; define what counts as solicitation.
• Forgetting carve-outs you need. Keeping a cemetery, a monument shop, or an insurance license requires words on the page.
• Over-allocating price to the covenant. It shifts tax onto you and gives the buyer nothing.

Non-price commitments flowing the other way, such as keeping your name and staff, are covered in our definition of legacy terms.