Sorensen v. Sorensen

DURHAM, Justice

(Dissenting):

I respectfully dissent. Defendant argues that the goodwill of a solo professional practice cannot be marital property. He cites Jackson v. Caldwell, 415 P.2d 667 (Utah 1966), for the proposition that a professional practice does not have any goodwill value. Stripped of dicta, that case stands for nothing more than that Jackson failed to prove that his former accounting partnership had any remaining goodwill for which it was accountable to him. See id. at 671. In that case, we simply upheld the factual findings of the district court.

Defendant cites Dogu v. Dogu, 652 P.2d 1308 (Utah 1982), as reaffirming his view of Jackson. Our decision in Dogu contains no analysis of this issue, only a simple statement, not referring to a trial court finding, that Dr. Dogu’s medical practice had no “earning power” other than his ability to work. Id. at 1309. There is no mention of evidence about the value of the practice other than receivables and cash on hand, which were both accounted for in offsets and alimony. We certainly did not reject the concept of goodwill value in that case.

Defendant asserts that language in Gardner v. Gardner, 748 P.2d 1076 (Utah 1988), noting that “[g]ood will is properly subject to equitable distribution upon divorce,” id. at 1080 n. 1, is dictum and that the facts of Gardner distinguish it anyway. I do not agree. What appears to be dictum in Gardner is intended to guide the trial court on remand. Although the facts of Gardner are different (Dr. Gardner was part of the twenty-three-member Ogden Clinic, while defendant is a sole practitioner), the distinctions do not make a difference here.

The real problem, and apparently a major reason for the disagreement between the majority and the dissent in the court of appeals, lies with the term “goodwill.” The majority below went to some trouble to explain why goodwill could be marital prop*780erty subject to distribution, and the dissent took them to task for “trying to create ‘new property’ in the context of marriage dissolution.” Sorensen v. Sorensen, 769 P.2d 820, 833 (Utah Ct.App.1989) (Jackson, J., dissenting).

If the issue before us were whether a specific dollar figure assigned to the “goodwill” of defendant’s practice as a separate asset in that practice was supported by the evidence at trial, we would be faced with a more difficult question. However, the trial court’s factual finding was that the value of defendant’s dental practice was $100,-000. The court made a comprehensive finding on value and did not break that figure down into specific categories, such as accounts receivable, equipment, or goodwill. In its conclusions of law, the court stated its “feeling that the large portion of the value of the practice has to do with good will and reputation built up in the practice over the years of marriage.” The court’s finding and conclusion are supported by the evidence and are consistent with the testimony of plaintiff’s expert on dental practice appraisals.

No specific evidence was introduced by plaintiff on the value of “goodwill” as the parties use the term in their briefs.1 Goodwill was merely the term used by the trial court to define that significant part of the value of the practice not directly attributable to accounts receivable and equipment and to allude to the reasoning behind its conclusion that eleven-sixteenths of the practice was marital property, as discussed hereafter.

The trial court accepted plaintiff’s expert’s valuation of the dental practice. This expert relied on a method that valued the intangible aspects of a practice by multiplying the annual gross receipts of the practice by a percentage factor (ranging from 20 to 100 percent) that took into account such variables as location of the practice, age of accounts receivable, ratio of accounts payable to gross revenues, age and condition of equipment, office atmosphere, etc.2 The actual percent of gross revenues selected depended on these variables and was determined by the appraiser based on his experience and the information compiled by the dental practice brokerage firm to which plaintiff’s expert belonged.

Plaintiff’s expert valued defendant’s practice at 34 percent of its gross annual revenues, plus discounted accounts receivable and equipment value. On cross-examination, the expert testified that this method of valuation did not break down the value of the practice, even though accounts receivable and equipment were valued separately. Plaintiff’s expert testified that this was a standard method of valuing dental practices for sale and opined that most practices sold for more than 90 percent of appraised value. This method is not unlike methods commonly used to value other types of businesses and even commercial property.

Credibility of witnesses and valuation of property are within the trial court’s discretion, which this court does not disturb unless it has been abused. See, e.g., Soren-sen, 769 P.2d at 823. Defendant has not shown that the trial court abused its discretion. The majority opinion errs in identifying the issue in this case as an abstract one of whether the goodwill of a solo professional practice can be a marital asset. Rather, the issue should merely be one of proof: Did the plaintiff in this case put on sufficient evidence to support a finding of value consistent with her theory? The answer is yes. If a plaintiff, using admissible and reliable evidence, can convince a trial court that a solo professional practice has a specific value, then we should uphold that valuation, whether it includes goodwill or not. If the plaintiff’s lawyer does a good *781job, the plaintiff’s case will include goodwill whenever sufficient credible testimony can be adduced to support it.

In other words, I would hold that business and professional goodwill constitutes marital property to the extent that market data establishes a value for it independent of the value of spousal earning capacity, spousal skills, and postmarital spousal labor. Such a rule should allay the concerns expressed in the majority opinion. The majority’s blanket prohibition of any consideration of goodwill as divisible marital property in any circumstances is overkill. See Hanson v. Hanson, 738 S.W.2d 429, 433-35 (Mo.1987).

In this case, the record reflects extensive expert testimony at trial regarding the fact that there is an economic (salable) value to the goodwill in this practice. There are experts who specialize in the sale of solo professional practices. In fact, this practice was for sale at the time of the divorce, listed by defendant himself at a price that included value for goodwill. I think the majority has overstepped the proper function of this court in substituting its “opinion” that solo practices cannot include value for goodwill in the narrow context of divorce, when such value is included for all other purposes and when such value was supported by expert testimony and the factual findings of the trial court.

I concur in all other portions of the majority opinion.

ZIMMERMAN, J., concurs in the dissenting opinion of DURHAM, J.

. Although plaintiffs attorney and expert used the word “goodwill” several times in the course of the testimony on the value of defendant’s practice, that testimony and the appraisal report admitted into evidence make clear that the term actually referred generally to all intangible aspects of value, including those discussed below.

. Most of these factors are not relevant to goodwill as the term is used in the parties’ briefs and in our cases. See, e.g., Gardner, 748 P.2d at 1080 n. 1.