Sorensen v. Sorensen

SORENSEN, Elaine S. Plaintiff Respondent, SORENSEN,

Clifford G. Defendant Appellant.

No. 870102-CA. Appeals

Court of of Utah.

Feb.

Rehearing Denied March Kasting, City, appel-

Kent Salt Lake for lant. Robinson, and Jeffrey

Reid E. Lewis Salt plaintiff respondent. for City, Lake and GARFF, BILLINGS and Before JACKSON, JJ.

BILLINGS, Judge: action, defendant/appel- divorce In this (“Dr. lant, Sorensen”) G. Sorensen Clifford appeals property the trial court’s valuation distribution, attorney fees award of and Sorensen, expert Mrs. the allocation fees. We affirm the dis- witness and allocation of witness tribution attorney fees but reverse the award fees.

FACTS April 10, parties were married registered Mrs. Sorensen was a Dr. a dentist and had nurse. Sorensen was Roy, practiced approximately Utah par- prior marriage. years six 9, 6, children, ages four and 3 ties have dispute of trial. There is no at the time alimony. custody, support, child During marriage, Dr. Sorensen con- Roy. practice as Mrs. tinued to a dentist returned to school received Sorensen degree nursing and also her masters completed necessary all the courses for a public Ph.D. health. trial, Dr. Mrs. claimed Sor-

At Sorensen cor- ensen’s dental subject a. poration, was marital asset court. distribution valuation Austin as Mrs. called Dr. Richard Sorensen had been expert witness. Dr. Austin an years. one-half in Utah for four and dentist also worked for a Denver com- Dr. Austin purchase and sale pany that brokered brokerage practices. compa- dental His appraised approximately ny had and sold practices. par- Austin had dental Dr. appraisals in 12 and 7 sales of ticipated dentistry practices. of the 7 sales oc- Six City area. in the Salt Lake curred Austin testified that the fair market tients record the maintenance of figures healthy production Dr. Sorensen’s dental attest this. value of $100,060 practices in Utah location on a generally percent very sold for to 95 of their highly is in traveled street and public appraised visibility value. In connection with his excellent location exposure. Parking is testimony, presented convenient. The Dr. Austin the trial space adequate office and functional. court his written valuation of Dr. Soren- However, updating equipment and lease- practice. Dr. sen’s dental Austin’s valua- improvements hold would increase the based on tion was unaudited information practice. value of this previously provided by Dr. Sorensen aging The of the accounts through discovery. Dr. receivable indi- Austin’s calcula- healthy practice cates the has a col- the com- tion was combined of three policy receptionist lection and that the 1) assets, i.e., ponents: tangible furniture doing good a of job collecting. 2) equipment $15,330, and accounts re- — $22,170,1 3) intangible community Roy healthy, The of a assets has ceivable— growing economy. The influx of “goodwill” $62,560, for a total market new — dentists into $100,060. quickly the area absorbs Dr. of Austin further tes- patients seeking new dentists. important tified to realize that this “[i]t [according evaluation has been made to] response to Dr. testimony, Austin’s acceptable the currently standards that are Dr. two expert Sorensen called witnesses: purpose. Existing for this market trends accountant, Deters, Gerald Mr. his and Mr. disposition the state of Utah for the of Roger Nuttal, CPA. a Mr. Deters com- practices given dental were consideration.” income, pared respective expenses, the profit of Dr. Sorensen’s dental practice for goodwill value, To determine the Dr. years the 1974 and and concluded expenses Austin income reviewed the marriage, that since the date the Dr. practice year of Dr. Sorensen’s for a three practice bigger, was “a Sorensen’s little bit period, During through this a little better.” Mr. Deters further testi- time, averaged $184,000 Dr. Sorensen fied had never shown been gross receipts. Austin Dr. testified that an asset Dr. Sorensen’s cor- “goodwill” the practices value of dental he poration. ranged appraised had 15 to Utah from percent gross Roger Dr. receipts depending their Sorensen also called Mr. Nut- tal, who on number of evaluated the factors. These factors Sorensen’s entire situation, per- financial both length practice include: the business the had been sonal. Mr. operating, location, Nuttal testified that he believed patients, number of goodwill existed, some but Dr. Aus- profitability, found currency accounts receiva- “very questionable.” tin’s ble, calculations He transferability and an evaluation of the further testified that Dr. failed Austin profit to prospective buyer. Applying $10,129 payable. consider accounts foregoing to Dr. factors Thereafter, relying primarily Dr. Aus- practice, Dr. Austin concluded tin’s less the for calculations amount ac- percent gross receipts value was payable, counts Mr. Nuttal testified that $62,560. Specifically, for a total Dr. Sorensen’s dental was worth Austin testified: $87,096. approximately age practice plays of a dental practice, With reference to dental important determining role in its value. emphasis: trial court concluded with our practicing Dr. Sorensen has been community years for a number of has continued to [Defendant good reputation Utah, dentistry has established a in Roy, during the course family pa- the marriage dental care. number and has an office with an resulting percent 1. To arrive at a dollar value attributable to amount account receivable, accounts Dr. Austin all excluded ac- for uncollectibles. unpaid days, counts over 120 and discounted appraiser paid location; expense continued to build has excellent fee clientele; good initially by collection Dr. Sorensen with ultimate his com- good reputation payment responsibility and a to be deter- record munity. mined the trial court. the total value of

The Court finds ap- raises three issues on Sorensen $100,000 including ac- practice to be First, peal. he claims the trial court erred equipment with and all counts receivable 1) practice by, in its valuation of exception computer. “goodwill” determining was marital ap- usually sell for practices That dental distribution, 2) equitable subject to asset appraised percent proximately including Dr. Sorensen’s accounts receiva- value.... the dental ble valuation 3) payable failing to consider accounts Second, in its evaluation of the awarded The defendant should be Dr. Sorensen claims the trial court erred including equipment all practice dental awarding portion of her Mrs. Sorensen a receivable the Court and accounts feel- portion attorney Finally, value Dr. large the fees. Sorensen ing that the of good ordering with will him practice by has to do the court erred the claims trial of up reputation portion expert built pay and to of Mr. Heiskanen’s only marriage. The the years over witness fee. of practice is to said way reasonable upon years the the proportion it based to DENTAL I. VALUATION OF during married the parties have been PRACTICE eleven years Based on their practice. divorce “deter proceeding, In a marriage years over sixteen mining assigning values to marital distribution, the Court purpose the for property is matter for the trial court percent of the practice at 69 values the those determina this Court not disturb will $62,- as for a total of found above showing of clear tions absent a abuse Talley Talley, P.2d discretion.” essentially then The trial court ordered (Utah making “In such Ct.App.1987). parties’ property equal division orders, permitted the is broad trial court $62,100 crediting to Dr. Sorensen latitude, light judgment is not to and its offsetting equal amount practice and an disturbed, long it exercises its ly so as property to Mrs. Sorensen. the standards in accordance with discretion Newmey by Newmeyer this set Court.” The trial court also ordered Sorensen (cita (Utah 1987) er, 745 P.2d $2,000 Mrs. Soren- contribute toward to omitted). party appealing An bears tions testi- attorney fees. Mrs. Sorensen sen’s establishing that trial the the burden of fees, no incurred but she had fied she had “or that the those standards court violated Mrs. pay those fees. present income upon findings which trial court’s factual attorney proffered an exhibit Sorensen’s grounded are [property] division is the reflecting rates spent the time the clearly Utah Rule of Civil erroneous under stipulated charged. Dr. Sorensen’s counsel Furthermore, 52(a).” as ex- Procedure proffer the could be received but credibility expert weight sessing fees the stipulate that the pressly refused to trier testimony is matter the reasonable. witness were Yelderman, fact. Yelderman v. parties the trial also ordered The court 1983)(“it (Utah is within of their own wit- expense bear finder to believe province of fact nesses, exception Allan Heiska- with the chooses”). those witnesses evidence nen, appraiser, real whose fees estate split. The Soren- parties were ordered to Goodwill sens, stipulation, agreed have by pretrial distribution, trial property In its Heis- appraised Mr. property real their $62,100 Dr. Sorensen credited provided that court stipulation kanen. represents Gardner, the trial court’s indirectly assess- issue in Gardner v. (Utah 1988). ment of the total value of Dr. Sorensen’s Gardner, part calculations, As of its trial awarded Dr. Gardner his assigned the trial court a substantial value retirement account medical assets profes- to the of Dr. Sorensen’s assigning present without them a value. corporation. appeal, sional dental On we Supreme The Utah Court reversed the trial first must determine whether decision, court’s and remanded for further properly subject considered a marital asset proceedings for a valuation of the medical distribution, so, if whether there is assets and retirement account. consid- competent support evidence to the trial ering the valuation and distribution finding court’s as to value of assets, doctor’s medical the Court stated corporation. ability generate of a business to “[t]he patronage income from its continued action, In a divorce trial courts should good commonly referred to as will. Good marital distribute and income in properly subject equitable dis- parties readjust order may that “the their upon tribution divorce.” Id. at 1080 n. 1 their lives to new circumstances as well as (citations omitted) added). (emphasis Gardner, possible.” Gardner v. chastises 1988) (citations omitted). dissent us for our reliance on language in “[Mjarital claiming Gardner property ‘encompasses all of Justice every possessed Stewart intended to limit his assets nature endorsement parties, whenever obtained and from a marital asset to multi- what- derived_’” (ci- corporations. ever source at 1079 membered omitted). However, Supreme tation The Utah Justice Court Stewart does not make a emphasized: has “type” distinction as to the of business fact, entity Gardner, the Utah [Wjhether a subject resource is to distri- Supreme Court on Dugan Dugan, relied v. does turn bution on whether the 423, (1983), 92 N.J. 457 A.2d 1 spouse presently it, and In re can use or control or 324, Marriage Fleege, 91 given on the resource Wash.2d 588 whether can a of (1979), present support P.2d 1136 dollar to its conclusion value. The essential cri- that the right corpora- terion is a of a whether to the benefit subject tion or has to part asset accrued in whole or in distribution a divorce during marriage. proceeding. Gardner, 748 P.2d at 1080 n. 1. Both solely decisions involved Woodward, 431, Woodward v. P.2d 656 operated owned professional practices. or (Utah 1982) (emphasis added). 432-33 question prevailing among The jur- view 20 other whether corporation profes- isdictions is a marital as- set, properly subject equitable sional or distribu- business is a marital as- action, set, valuation, tion in a subject therefore, divorce is one of first impression Court,2 although for this proceed- should be considered in a divorce Supreme Utah recently ing.3 holding Court addressed contrary Jurisdictions to the Stevens, (1985) 2. (professional In Stevens v. corporation); 754 P.2d 952 Ct. 301 In re Jackson, Nichols, 383, App.1988), Judge writing Marriage Colo.App. for this 43 606 P.2d Court, (1979) association); appellant “good (professional Wright found that the confused 1314 value,” "going Wright, (Del.Fam.Ct.1983) (sole will” v. concern and failed 469 A.2d 803 White, prove practitioner); Marriage by competent the existence of re 98 Ill. 380, 786, App.3d evidence. Id. at 53 Ill.Dec. N.E.2d 956-57. 424 421 (1981) (professional corporation); Heller v. Hel See, Rostel, (Alaska ler, e.g., (Ky.Ct.App.1984) (profes Rostel v. 622 429 672 S.W.2d 945 1981), grounds, corporation); rev'd on Kowalesky Kowalesky, other 749 P.2d 343 sional v. (Alaska 1988) (close 151, corporation Mich.App. (1986) (pro 148 384 N.W.2d 112 —husband shareholders); Mitchell, corporation); Roth, wife sole Mitchell v. 152 fessional Roth v. 406 N.W. 317, (1987) (sole (partnership); (Minn.Ct.App.1987) Ariz. 732 P.2d 208 practitioner); 2d 77 Wilson, 194, Hanson, (Mo.1987) Wilson v. Ark. 294 741 S.W.2d 640 Hanson v. 738 S.W.2d 429 (1987) (professional corporation); Hull, (partnership); Marriage In re Mar re Watts, 366, (Mont.1986) riage Cal.App.3d Cal.Rptr. (professional corporation); Kansas, Louisiana, Missouri, accounting field, goodwill Penn- In the is re- include " Wisconsin, Texas, generally and Tennes- ferred ‘the summation sylvania, special advantages, all the not otherwise see.4 identifiable, going related to concern. It de- legal most common definition name, good capa- such items as includes “goodwill” as: scribes personnel, high credit stand- ble staff advantage benefit, or which is ac- [T]he ing, reputation superior products establishment, beyond the quired by an ”6 services, and favorable location.’ funds, stock, capital, of the mere value “There can be no doubt therein, employed in conse- or protectable It is a intere legally exists. general patronage quence public st.”7 Goodwill been held to consti encouragement receives meaning “property” tute within the customers, or from constant habitual process fourteenth amendment due clause8 position, of its local or common account subject being bought and is and sold.9 reputation skill afflu- celebrity, or or present may be the busi ence, Goodwill whether punctuality, or or from other acci- necessities, proprietorship, partners or ness form is a sole dental circumstances or association, partialities joint venture, corpor preju- hip,10 from ancient even dices.5 ation.11 Accounting (7th Taylor, Taylor 222 Neb. 386 N.W.2d 851 Intermediate ed. standard v. (1986) corporation): Dugan 1982)). (professional Du v. vol. (sole (1983) gan, practi N.J. 457 A.2d 1 Hertz, tioner): v. 99 N.M. Hertz Dugan, at 4. 457 A.2d (1983) (professional corporation); Dorton Dorton, N.C.App. 336 S.E.2d 415 v. (1985); Seattle, City F.Supp. 8. McDermott Jondahl, (N.D. N.W.2d 63 Jondahl (and therein). (D.Wash.1933) citations (sole 1984) Marriage practitioner); Reil In re (sole (1983) Or.App. ing, P.2d 1360 Caldwell, 9. Jackson v. 18 Utah 2d Fait, (S.D. practitioner); Fait v. 345 N.W.2d 872 1984) association); (professional (1984) 103 Wash.2d 692 P.2d 175 Mitchell, Supreme v. 10. In Mitchell the Arizona corporation). (professional noted that there is in this area Court confusion law, partly analysis 456, of wheth- See, Powell, because the e.g., v. 648

4. Powell 231 Kan. Pearce, (1982); goodwill should be considered an asset often So.2d er P.2d 218 Pearce v. 482 (La.Ct.App.1986) partnership which (expert testimony to involves the dissolution of a 108 failed value); agree- goodwill by partnership prove proprietorship sole had is sometimes controlled a Carter, ment, (Mo.Ct.App. opposed 616 Carter v. S.W.2d 543 to of a mar- as the dissolution 20, 1981); 317, 208, Beasley Beasley, Pa.Super. (1987). 518 riage. v. 359 152 Ariz. 211 Holbrook, (1986); Wis. A.2d 545 Holbrook v. 103 of a The Arizona Court described the dissolution 327, (Ct.App.1981); Nail v. 2d 309 N.W.2d 343 marriage as follows: Nail, (Tex.1972) (no goodwill in 486 S.W.2d 761 practice automatically goes to A Geesbreght proprietorship). v. see sole But spouse He is not licensed it. Geesbreght, (Tex.Civ.App.1978) 570 S.W.2d 427 selling continuing liquidating, out or but (goodwill professional corporation is' marital Effectively, business. it is the case also, Smith, asset). Smith S.W.2d 588 See v. 709 withdrawing going partner busi- silent from a (Tenn.Ct.App.1985). And, partner to receive fair ness. if such is share, compensation her her enforced Comment, Dividing Identifying, Valuing, and 5. retirement, it should be so evaluated. Community Property Goodwill Professional Id. Community, Tul.L. the Marital 56 Dissolution of Caldwell, au- is the case in v. Such Jackson 313, (1981) (quoting Story, J. Commen Rev. 314 propo- thority relied on Dr. for the Sorensen 99, Partnerships Law of at 170 § taries on the goodwill not be considered sition that should Hanson, (6th 1868)). See v. ed. also Hanson subject property in di- to distribution marital The .Mitchell v. Mitchell: Division of Professional Jackson, proceedings. P.2d at vorce 415 Dissolution, Upon Marital 11 Harv. Goodwill 670-71. 147, (1988); L.J. 149 and Jackson v. Women's 667, Caldwell, 81, 2d 18 Utah 4; Mitchell, See, Dugan, e.g., A.2d at (1966). 210-11; Heller, v. 672 S.W.2d P.2d at Heller Hanson, (Ky.Ct.App.1984); v. Dugan Dugan, Hanson v. 457 A.2d N.J. Skousen, (Mo.1987). (1983) (quoting J.M. and K.F. S.W.2d Smith overwhelming majority jurisdic- indistinguishable earning from future ca- considering tions good- issue find that pacity only and is valuable to the individual interest, such, property ais and as to the extent that it assures substantial proceedings. must considered divorce earnings in Finally, oppo- the future.13 goodwill Whether exists and has a value goodwill nents assert is difficult case, particular question is a of fact. Ac- value, hence it should not considered cordingly, agree we with majority divorce settlements.14 We address each jurisdictions and dicta Gardner arguments separately. these Gardner, goodwill and hold that the of a Holbrook, Holbrook the Wisconsin professional practice is a marital asset sub- Supreme expressed Court the view that ject to valuation distribution in the goodwill not does “bestow those who appropriate circumstances. ownership business, an have in the interest Jackson, Judge dissent, in his criticizes actual, separate an property interest.” approach by Washington taken (Ct.App. Wis.2d 309 N.W.2d goodwill in valuing California courts before 1982). Accordingly, the Wisconsin Court they address whether it exists at all. analogous determined that is more Judge adamantly Jackson asserts that professional degree a than a approach valuing goodwill in- should interest. two-step inquiry: a volve does ex- disagree We particular so, Wisconsin’s rationale. entity, ist in this if what significant are Although is value. There go its some courts and distinctive differ do issue, directly to the a ences between profession valuation conclusion of a implicitly exists answers al and a degree.15 inquiry first in the im- affirmative. More professional degree, goodwill Unlike a portantly, however, opinion we think our traditionally intangible defined an as clearly engage directs trial courts to “property right.”16 separate It is two-part approach. asset, merely distinct factor contribu ting earning capacity practi split We concede that there is of au- re Marriage tioner. See In issue, thority on this we but find those 175, 178(1984). Wash.2d jurisdictions holding contrary to the unper- theory underlying goodwill is that on an suasive. Courts that to recognize refuse going beyond business has a mere as a marital asset their base con- clusions, tangible intangible assets. These generally, assets grounds. on three First, independent opponents proprietor, contend such, apart open asset can be on an separate sold market. from Nichols, practitioner individual respect, Colo.App. and in this analogous professional Nichols, to a de- P.2d 1315 In gree.12 Second, they goodwill claim that is of Appeals Colorado Court stated: 456, Powell, 16. See, Kan.App.2d e.g., Nichols, 12. Marriage See Powell v. 231 In re 606 P.2d 218, Holbrook, (1982); 648 P.2d 223 Holbrook v. at 1315. In addition to those hold authorities 327, 343, (Ct.App. asset, 3, 103 Wis.2d 309 N.W.2d goodwill 354 that is a marital see note Nail, 1981); 761, (Tex. Nail v. 486 S.W.2d 764 jurisdictions supra, holding even those to the 1972). contrary, good nonetheless find that is a See, Powell, property e.g., interest. v. Powell 231 Powell, 223; Holbrook, 456, 218, 13. (1982); Nail, 648 P.2d at 309 Kan. 648 P.2d 222 Nail v. 354; Nail, N.W.2d at 761, (Tex.1972); 486 S.W.2d at 764. Beasley 486 S.W.2d 763 v. Beas 545, ley, (Pa.Super.1986); 518 A.2d 552 v. Pearce See, Holbrook, 108, e.g., 14. (La.Ct.App.1986). 309 N.W.2d at 354. Pearce 482 So.2d 111 In stead, typically particu these cases find that the See, Mitchell, 317, goodwill facts did e.g., lar not demonstrate that the 15. Mitchell v. 152 Ariz. value, therefore, 208, (1987); goodwill per had se should Marriage 732 P.2d re 211 In Powell, Nichols, 383, 1314, Colo.App. considered marital asset. See 43 606 P.2d 1315 222-24; Nail, 764; Heller, 945, (1979); P.2d at Heller v. 648 486 S.W.2d at 672 S.W.2d 948 423, 552; Pearce, Dugan (Ky.Ct.App.1984); Beasley, Dugan, at v. 92 N.J. 518 A.2d 482 So.2d at 1, (1983). 111. 457 6 A.2d

827 recognize compensation by form of deferred that we While employer. the rights an to those not an has is asset which If benefits acquired during marriage, are can, then value, in con- market it independent the court must at least consider those junction the assets of the with equitable an making distri- marketability limited dis- This be sold. benefits bution right ‘The the marital assets. goodwill from tinguishes professional (emphasis original) to receive mo- which, degree, be- educational advanced unquestionably future nies ... and is personal its holder cause it is resource, subject eq- an economic non-transferable, prop- held not to be [is] upon proper uitable distribution based erty— computation present of its dollar val- Id. 19 ue.’ exists, may well be When Similarly, if shown by can be regarded “the most lucrative asset competent credible to exist at the evidence enterprises.”17 some acquired time of dissolution and that it was property attributes It is during marriage, trial or accrued courts de- distinguish it from a that must “at least consider those benefits in prior held on occasions gree, we have making equitable distribution property marital sub- does not constitute marital assets.” also In re Mar Id. See ject to distribution.18 93, Lopez, Cal.App.3d 38 113 riage Cal. 58, (1974). Rptr. 68 have found that Several courts “[t]he pension rights which analogy is to better major treating The second criticism property.” v. Mitch- are marital Mitchell goodwill as a marital asset is that 208, (1987) ell, 317, 211 732 P.2d indistinguishably personal 152 Ariz. tied to future Thus, (and therein). property if dies earnings. practitioner Both are citations retires, marriage “nothing during al- remains.”20 rights acquired enjoyment though their and benefits contrary. note We at We believe Supreme Our Court deferred. outset, that is and must encompasses that marital stated practi- distinguished from a Gardner, 748 pension funds. Gardner v. capacity, an earning future issue tioner’s 1076, (Utah 1988); v. 1079 Woodward A number fully more addressed below. 1982). (Utah Woodward, 431, 432 not, goodwill is jurisdictions have held that however, per synonymous se with future Woodward, the Court declared earning capacity.21 emphasis: our recognize argument jurisdictions, to those one [Appellant’s] fails to addition opined is no are a val- or retirement commentator pension benefits “[t]here Woodward, (quoting 656 P.2d at 432 Kikkert Dugan, 457 A.2d 5. See also 46, 76, (1976). Kikkert, Or.App. Goger, N.J.Super. 47 A.2d v. (1981), Kruger Kruger, N.J. quoting v. (Utah Rayburn, Rayburn P.2d 238 18. See v. (1977)), aff'd, 88 N.J. A.2d Petersen, Ct.App.1987); 737 P.2d 237 Petersen A.2d 317 Petersen, Ct.App.1987). In held we degree encompassed with- an educational Powell, Kan. 20. Powell "property.” concept views of the in the broad also, Holbrook, (1982). See Holbrook v. exchange have an “It does not objective (Ct.App.1981) Wis.2d N.W.2d open mar- on an transferable value only (goodwill is valuable to the extent that it It termi- personal It is the holder. ket. earnings). future continued substantial assures not inheri- death of the holder and is nates on sold, assigned, transfer- It cannot be table. 423, See, red, simply Dugan e.g., Dugan, conveyed, pledged.... an 92 N.J. 457 or It may potentially 1, (1983); Marriage Lopez, that intellectual achievement 6 In re 38 A.2d of (1974); property. 93, 58, acquisition of assist in the future Cal.App.3d Cal.Rptr. In 113 67 re 236, attributes Hall, our view it has none of the In Marriage 692 P.2d Wash.2d 103 term.' property in the usual sense of that 175, (1984). 178 Marriage (quoting Gra- 240 re 737 P.2d at ham, 75, (1978)). 429, 194 Colo. argument good- id for the basis that since then may a trial court properly in declare essentially will is a measure of future earn- worth, its determination of practice’s that ings, properly it cannot be treated as a there goodwill. is no value attributable to asset_” marital 2 Valuation and Dis- The third and unpersuasive argu most Property, tribution Marital § 23.05[2] goodwill ment is that value, is difficult to (1988). at 23-69 The commentator further therefore, it should not be considered declared that is an economic truism “[i]t See, distribution of marital e.g., assets. any income-producing that the value of as- Holbrook, 327, Holbrook v. 103 Wis.2d capacity produce set is its future income. 343, (Ct.App.1981). N.W.2d This also regard, goodwill just In this like position seems to by taken the dis only other asset. Goodwill differs insofar sent. as, bond, unlike a stock or pro- it will not duce income itself.” Id. cases, We valuing concede that some argument goodwill disappears that goodwill so, is difficult. party’s Even if a practitioner a case where the dies or expert witness cannot adequately demon unpersuasive. retires is possibili- also goodwill value, strate that present has a ty patronage, despite of continued the ab- then simply there is evidentiary defect selling practitioner, sence of has should not be considered. present prospective buyer value to a of a However, the mere fact that may professional practice. Marriage In re See nature, be difficult to value or elusive Nichols, 383, Colo.App. 606 P.2d justify ignoring disregarding does or it (1979). Moreover, the value of altogether in the prop valuation of marital goodwill frequently remains notwithstand- erty. Nichols, In re Marriage 43 Colo. practitioner’s death, resignation, or App. (1980); disability. White, In Marriage re Mitchell, Mitchell v. 152 Ariz. 786, 789, Ill.App.3d 53 Ill.Dec. (1987). Mitchell, As in (1981). “[w]e N.E.2d “If it were other- prefer accept wise, reality economic we are unable to conceive the basis popular practice for the of a retaining names of deceased or value, withdrawn members and it should be treated as in many professional long firms after their upon dissolution of the community, regard death or withdrawal.” possibility Id. The less Mitchell, of the form of business.” of death or retirement practitioner 732 P.2d at 212. We are mindful that not may goodwill, reduce the value of but every professional practice necessarily has does not in all circumstances eliminate its goodwill. See, e.g., Marriage Hall, existence. re courts, 692 P.2d at 179. Some how Wash.2d ever, hold that proprietorships per sole se dies, When a retires or do not have because the busi earning capacity also either or retires depends ness’s existence exclusively on the Nevertheless, dies. professional spouse’s continuing efforts. practice may once attached to his contin- See, Nail, e.g., Nail v. 486 S.W.2d 761 ue existence the form of established (Tex.1972). prepared We are not to rule so clients, referrals, name, patients or trade Instead, broadly. emphasize we location and associations which now at- proof, particular issue is one of and not the partners buyers tach to former form the business takes. “It would be practice_ professional can trans- [A] inequitable to hold that the form of the (earning port capacity) all of his skill to a enterprise town, clients, business can defeat the commu patients reputa-

new but (goodwill) nity’s tion referrals al- goodwill. cannot interest ways transported. ignores Such result the contribution made non-professional spouse to the suc particular If in a case demon- the facts Mitchell, professional....” cess of the there is no re- strate that maining practitioner, in the absence of the 732 P.2d at 211.

829 business; the nature character of the Valuation Goodwill of thereof; average its success lack its goodwill of Dr. find that the Because we profits; probability and the of its continu- practice properly Sorensen’s dental ” the ance under same name.’ In re Mar- by the trial court in its considered 729, Goger, Or.App. 27 riage 557 P.2d distribution, next we address Soren- 46, (1976) (quoting City 47 Levene v. that the sen’s trial court erred contention Salem, 182, 255, 191 Or. 263 good- ultimately placed on the the value it “ (1951)). profits may established, ‘Past be will of his dental goodwill and the value of the estimated is a difficult at best task “It basis, being as a subject therefrom re- intangible compo for the arrive a value showing depression duced of a professional nent of a attributable trade or other circumstances that would Mitchell, goodwill.” 152 Mitchell v. make tend to the business less valu- 208, (1987). 317, Ariz. P.2d 214 732 able....’” goodwill question of fact valuation of specific Trial courts make should circ dependent upon particular the findings, goodwill indicating first whether In order to establish umstances.22 particular the exists under circumstances goodwill divorcing spouse’s profes of a case, so, Findings and if its value. asset, party is a sional marital clearly upon should the evidence state expert testimony produce must sufficient based, prefer which valuations constitutes a show that ably, the valuation method or methods on asset, independent of the valued business which the relied. See Poore v. presence professional continued 414, 266, Poore, N.C.App. 331 75 S.E.2d spouse.23 may Trial courts consider (1985). 272 legitimate “that mea valuation method by tak present value of sures the however, emphasize, one We factor results, past post- into account clearly should not considered be professional marital efforts professional is the valuation Poore, N.C.App. spouse_” v. 75 Poore earning capacity. spouse’s future Consist 414, 266, (1985). 331 S.E.2d 271 position our de ent with distribution, grees capable are not assets frequently courts have found Factors similarly earning hold that the future we the value of include: affect divorcing professional capacity of health, repu- age, [T]he not be To consider fu should considered. practitioner, the nature of tation of the earning valuation of capacity ture length prac- of time the corporation’s existence, prof- past its tice has been counting, of double would have effect success, its, comparative professional its earning capacity utilized deter is also of its assets.24 and the value other alimony mining appropriate an award. Oregon Appeals Similarly, the Court 564, Olson, See, P.2d 566 e.g., Olson v. 704 may that the value of observed 1985). “ ‘Elements ways. in a number shown action, are, In this Mrs. Sorensen length of may considered Austin, existence; witness emi- called time been the business 194, 24. Poore, Wilson, (citing Hurley 331 S.E.2d at 271 v. 741 S.W.2d v. 294 Ark. Wilson Carriker, (1987); 641, (1980)); 640, 151 Ariz. Hurley, Carriker v. N.M. P.2d 256 Ac 647 94 615 349, 296, (Ct.App.1986). 729, 350 Accord Marriage Goger, Or.App. In re cord of See also Poore, N.C.App. 331 S.E.2d Poore v. (1976). Marriage In re P.2d 46 (1985); Goger, Or.App. (1984); Wash.2d (1976); Hurley, Hurley N.M. v. 557 P.2d 46 Hertz, 99 N.M. Hertz (1980). 641, 615 P.2d 256 Taylor, Taylor 222 Neb. Hanson, (1986); Hanson v. N.W.2d (Mo.1987). S.W.2d nently qualified appraise practic- corporation’s goodwill. dental sional The trial practiced dentistry Austin had es. Dr. apparently court chose to Dr. Aus believe approximately tin, Utah for four and one-half and we will not disturb trial court’s years and worked for a firm is in the which findings they clearly factual unless er appraising selling dental business 52(a). roneous. See Utah R.Civ.P. A trial brokerage practices. Dr. Austin’s firm has adversary court’s fundamental role in the eighteen years over been business process judge credibility of wit practices. sold more than 250 dental Dr. nesses and he or she free to choose personally Austin has been involved in 12 among expert testimony. Canning See v. appraisals practices and sold 6 in Utah. 325, Canning, Ct.App. 744 P.2d 1987). Lockwood, also Lockwood v. supplied

Based on financial information (1980). Neb. N.W.2d Sorensen, by Dr. Dr. Austin determined give weight court will to the fact corporation that the value of the “[T]his $62,560. that the trial court procedure employed by The observed witnesses testifying and their manner of commonly by accept Dr. Austin is one used his brokerage firm, and is also consistent with ed one version of facts rather than the methodologies recognized approved opposite.” Id. jurisdictions previously in other discussed jurisdictions upheld Other have a trial goodwill figure herein.25 was derived choosing testimony party’s of one by considering history factors such as a expert expert over other’s in the con corporation’s earnings, length valuing See, goodwill. text of e.g., Ko in practice, time Dr. Sorensen had been walesky Kowalesky, Mich.App. patients, number of his the location of the (1986); 384 N.W.2d In re Mar practice, equipment, his facilities and ac- Hull, (Mont. riage receivable, counts and an evaluation 1986); Wright Wright, 469 A.2d transferability profits prospective ato (Del.Fam.Ct.1983). In Wright, the Dela buyer. impor ware Court indicated that one of the Dr. Austin further testified that tant considerations for its decision to ac practices value of dental in Utah cept expert’s testimony one was that the ranged percent gross from 15 to 80 of their husband’s had never been involved receipts. Accordingly, analy- on an based liquidation practices. the sale or of like described, previously sis of the factors (emphasis added). 469 A.2d Similar percent calculated factor for Austin a 34 ly, Kowalesky, involving a case the valu goodwill and then reduced Dr. Sorensen’s Michigan ation of a dental average gross receipts by percent. Appeals Court of held that the trial court’s percent goodwill factor was the low valuation, plain which seemed to favor percent end of the 15 to 80 he testi- tiff, clearly was not erroneous. The trial brokerage corpo- fied had been used his plain court’s valuation on the was based and sell other dental ration value Utah expert testimony, appellate tiff’s and the practices. plaintiff’s expert court noted that was “ac valuation, tively prac To refute Dr. Austin’s Sor- involved sale Deters, accountant, practic ensen called Mr. tices and the valuation those added). Nuttal, (emphasis and Mr. a CPA. Neither witness es.” 384 N.W.2d at 115 expertise appraising Kowalesky, den the court demonstrated stated: “[defen expert, public practices, testimony and their was virtu dant's a certified accountant tal clients, ally nonresponsive profes on the issue of a who has a number of dentists as did jurisdiction, only acceptable methodology. Although specifically par- either is the stated Hanson, ty, appeared part to use in a market See Hanson v. 738 S.W.2d Dr. Austin (Mo.1987). methodologies, methodology value Dr. Sorensen’s den- Of the five a market approach approach produces has been often the most con- tal A market value see, jurisdictions, goodwill. approval estimate for 2 Valuation cited in other servative e.g., Property, 103 Wash.2d and Distribution Marital (1987); in at least one at 23-66 § 23.05[2][a] experience alimony support obligations child have similar valuation [as appellant.” expert].” Id. at plaintiff’s analogous. find these Dr. Aus- persuaded We cases We are not this state experience the valu- ment Dogu proposition tin considerable from stands the practices. may and sale of dental Con- ation accounts receivable never be con experts versely, Dr. Sorensen’s both can- sidered in the valuation they not didly corporation. admitted that were involved Dr. not cited Sorensen has practic- of dental authority proposition, in the sale valuation additional for this jurisdiction’s commonly es. and we note other hold that may accounts receivable be con colleague able dissent takes a Our property sidered In in the distribution.26 expert approach to the review novel fact, Michigan Appeal the Court of conclud testimony. He further re- goes even than ed that the trial court committed reversible by found more jecting credible re failing error to consider accounts He adopting court and another. the trial prac ceivable in its valuation a dental opinion on gives “expert” his own the valu- Kowalesky tice. v. 148 Mich. Kowalesky, professional corpo- ation of Sorensen’s App. 151, 384 N.W.2d ration, ignoring testimony all the findings judge. and the of the trial experts foregoing, Based we conclude the on the that as simply think he believes a mat- We re- properly trial considered accounts court law, any professional ter ceivable in its valuation Dr. Sorensen’s not valued and dis- should association dental We action. believe

tributed divorce overwhelming authority is the con- Payable Accounts trary. Aus claims that Dr. Dr. Sorensen foregoing, find trial Based on the we valuation, apparently tin’s which was of Dr. court’s valuation of court, adopted trial failed to consid by the practice, relying on testimo- Sorensen’s $10,129 payable. er The record accounts Austin, abuse of ny of was if the ambiguous point, on this but even discretion. was payable full of the accounts amount considered, find the error was we

Accounts Receivable harmless. trial Dr. Sorensen claims parties Both to this action were awarded accounts re improperly court considered $131,000 in assets. approximately marital prac of his dental ceivable valuation Property actions distributions divorce disagree. We tice. “equitable.” “equal” need not but rather P.2d generally Berger Berger, v. Dogu Dogu, 652 See Dr. Sorensen relies 1985). equality is a wor (Utah 1982). “While Dogu, the trial P.2d 1308 goal, equality $25,000 thy precise mathematical of accounts receiva- court excluded required.” Canning v. not essential in its consideration of ble (Utah Ct.App. corporation. Canning, 744 P.2d defendant’s if 1987). Accordingly, we find that even Finding had not abused its the trial court full to consider the discretion, the trial court failed Supreme Court sum- Utah payable in its calcula amount of accounts corporation’s accounts marily stated “[t]he tions, error mistake was harmless represent from such a deferred income receivable considering property total distribution. ongoing respondent may meet (accounts See, (Colo.Ct.App.1984) receivable Or.App. e.g., Kopplin Kopplin, 74 (trial (1985) already represent court did not err for services rendered 703 P.2d by cent); debts discounting per- property); receivable In re accounts constitute marital therefore Reiling, Marriage Or.App. Goldstein, Marriage P.2d 120 Ariz. (accounts (1983) receivable (trial (1978) properly included the valuation of a to be included in asset). as a marital accounts receivable firm); Bayer, law re Conclusion request include, the necessity for the dedicated, number of hours the reasonable- Based on Dr. Austin’s testimony, the tri- ness of the charged light rate al court found that Dr. difficulty of the case and the result accom- $100,000 worth tangi- was which included plished, and the rates commonly charged assets, receivable, good- ble accounts for similar community.29 services The trial will. court further found that practices sell for approximately 90 case, In the instant there is sufficient value, $90,000 percent of their hence evidence to demonstrate Mrs. Sorensen’s designated prac- as the total value of the However, financial need. counsel for Mrs. tice. The trial court then discounted this Sorensen concedes that no evidence was figure to account for the parties time the regarding offered the “reasonableness” of were married. The trial court found that attorney the fees incurred to maintain this Dr. practicing Sorensen had been for six- Instead, action. Mrs. Sorensen’s attorney years, parties teen and the had been proffered mar- reflecting an exhibit only the approximately ried for eleven and one-half spent time and the charged. rates years. He further majority concluded the stipulated counsel prof- that the practice value of the had received, fer could be but expressly re- during been established marriage.27 the stipulate fused to to the “reasonableness” Thus, multiplied he reduced or 11.5/16 or of the fees. No presented evidence was percent $90,000 by $62,100, to arrive at relating to the reasonableness of the num- the assigned total value he Dr. Sorensen’s hours, ber of the usual hourly rate for dental as a marital asset. divorce cases in community, nor the overall reasonableness of the fee. See Tal- Having concluded, 1) prop- the trial court ley, 739 P.2d at 84. Additionally, the erly considered accounts receivable and findings court’s written of fact and conclu- goodwill in its valuation of Dr. Sorensen’s law, sions of as well as the decree of di- 2) failing and to con- vorce, make no reference to the reasonable- sider payable entirety accounts in its was ness of the fees. Accordingly, we find the error, harmless we find the trial court’s proffered testimony insufficient to sustain ultimate valuation of pro- Dr. Sorensen’s fees, of attorney therefore, award corporation fessional dental supported is by we reverse. record, and accordingly, the trial court’s valuation is affirmed.

III. EXPERT WITNESS FEES II. ATTORNEY FEES Ordinarily, a trial court cannot re

In order to attorney quire recover party pay one party’s to the other action, fees a divorce moving party witness fees excess of the statu evidence, 1) must set demonstrating forth tory Kerr, rate.30 Kerr v. 610 P.2d reasonable, 2) that the (Utah 1980). award estab Frampton See also lishing Wilson, the financial need of requesting (Utah 1980). 605 P.2d party compels However, the award.28 The parties relevant in this agreed case the determining factors for pretrial stipulation reasonableness prop- to have their real 27.Although Kerr, conclusively (Utah the record does not 28. Kerr v. 610 P.2d 1384-85 1980); Talley Talley, (Utah establish that the value of Dr. Soren- Ct.App.1987). sen's increased at a constant rate throughout marriage, there is also no con- Kerr, 1384-85; Talley, 610 P.2d at 739 P.2d at troverting establishing evidence that it did not. fact, presented very Dr. Sorensen little credi- testimony regarding ble 21-5-4(1) (1988), value of provides 30. Utah Code Ann. § corporation. “[e]very his Based legally required good on the evidence before witness or in court, [trial], requested apportionment the trial its faith to attend method of ... is entitled to per day day $14 for each in attendance and not an abuse discretion. actually necessarily cents for each mile going only." traveled in proper- They properly cannot characterized as by Mr. Heiskanan. erty appraised spouses.” ty subject to division between the paid his fee agreed that would further proper stated it is Sorensen, We also consider with the ultimate initially by Dr. degrees licenses advanced deter- payment to be responsibility determining spouse’s ability pro- when Stipulations are the trial court. mined support, degree vide because an advanced binding parties on the un- conclusive ordinarily potential an indicator of future good is demonstrated warrant- less cause earnings. McDonald, Higley v. relief therefrom. 1984). discrepancy earning their Dr. Soren- But power alimony, which is the basis for adequate justification not set forth sen has discrepancy their educations.... pre- discharge obligations under provide spouse’s ability Whether Simply because Sor- stipulation. trial support is the result an advanced de- agree appraiser’s with the ensen did gree license is irrelevant parties’ property, real valuation key spouse’s analysis. is the experts, to hire additional instead chose ability. good requisite does not constitute find no abuse discretion cause. We Id. (emphasis original). of the the trial allocation affirm court’s Rayburn Rayburn, In fee. appraiser’s (Utah Ct.App.1987), 240-41 reaffirmed we Petersen, holding acknowledged in our but sum, affirm the trial court’s valua- In we involving there be situations advanced proper- parties’ of the tion and distribution degrees and licenses where an fees. ty, allocation of witness and its award of non-terminable rehabilitative attorney fees. the award We reverse alimony appropri- would be reimbursement Petersen, at 242 n. In ate. J., GARFF, concurs. view, alimony is my reimbursement a re- JACKSON, part in Judge (concurring spouse in one made turn on investment dissenting part): in financially supporting spouse. In con- majority I I from Part of the dissent trast, alimony relates to lost rehabilitative opinion. self, resulting in in one’s lost or investment income stream. lower future colleagues Why my and others are trying proper- to create “new legal system pro- is most The need for reimbursement marriage context of dissolution? ty” divorces, where nounced “threshold” injustices perceived real Because up of one parties split benefits before property settlements inequities earning re- potential spouse’s enhanced high of their As a result divorce decrees. Rayburn, instant case Like alized. prime professionals are production, income divorce. Dr. does involve a threshold not new, expansive definitions targets for the degree acquired his be- Rayburn medical (1) advanced univ- property that include: Rayburn married. Mrs. parties fore the (8) (2) practice; licenses to ersity degrees; financial sacri- did not endure substantial restitution; (4) professional equitable her own education assist fices or defer property” Proponents of “new goodwill. shared the financial his education. She they believe definitions because justify new degree years. for several rewards sys- provide the divorce those definitions brought considera- production His income fair. means to additional tem with property into mar- personal ble real and

riage equitably that was divided. THE “NEW OF STATUS his de- acquired Similarly, Dr. Sorensen IN PROPERTY” UTAH license, clientele and gree, and dental marriage. years six Petersen, before equipment Petersen v. nothing to assist Mrs. Sorensen contributed this held that Ct.App.1987), made no acquisitions; she him in those an intan- degree is or confers “an advanced character, sacrifice, or otherwise. She financial which, of its gible right because shared his financial they rewards eleven means have chosen. our Under stat- years tangible ute, and received considerable (1988), Utah Code Ann. equi- 30-3-5 § decree, plus in the divorce alimo- ty through can be achieved non-terminable ny support. and child If the facts had alimony awards Rayburn consistent with it, warranted she could have been awarded preferable and Petersen. This method is non-terminable rehabilitative or reimburse- judicial selection of new definitions of alimony. ment property. In another involving recent divorce case ORIGINS OF PROFESSIONAL professional spouse, Martinez v. Mar- GOODWILL

tinez, (Utah Ct.App.1988), 754 P.2d 69 majority followed and Rayburn Petersen many legal doctrines, Like profes- that of degree insofar as it held that a medical sional as a marital asset divisible property subject to valuation and distri- at divorce had one of its airings earliest However, in a stating bution divorce. appellate the California courts. In Mueller required Mrs. Martinez’s situation “more Mueller, 144 Cal.App.2d analysis case, creative” than the usual (1956), 94-95 the Third District Court of Martinez, 76, majority 754 P.2d at then Appeal quoted what it believed to be the beyond moved rehabilitative or reimburse- “general rule” in 28 good- AmJur. 808 that alimony ment property by to create new will could exist in requiring “equitable award restitu- dependent business personal on the skill alimony tion” addition to traditional ability particular person, of a but did property division.1 See id. at 78. In a adopt authority that rule. The relied footnote, majority emphasized eq- Mueller, however, inon focused on an ac- restitution uitable would not be awarded professional practice. tual sale of a marriage many years where the lasted for case, disposed the Mueller court receipt professional degree; after of the in by assuming case no could attach case, such a sufficient assets would be holding such a business and then that appropriate accumulated and an distribu- laboratory the dental business at issue did requesting spouse provide tion to the would depend solely divorcing on the hus- a share of the economic benefits earned as personal later, band’s years skill. Six degree. a result of the Id. at 78 n. 10. again same court in dicta—that the said— Equitable restitution, this new animal professional practice value of a proper- alimony to be confused with traditional ty dissolution; marriage to be considered at property, was described the Martinez appellant appealed ex-wife had not even “nothing majority eq- as more than an any the trial court’s failure to her award of sharing par- uitable rewards both respondent’s the value of the practice. law expectations.” ties’ common efforts and Brawman, Cal.App.2d Brawman v. 199 dissent, I in my Id. at As stated 106, Cal.Rptr. (1962). 19 Finally, 109 unnecessarily effect of decision is to Brawman, relying on Mueller and the Sec- distinctly unprecedented create a new and Appeal ond District Court of explicitly em- (Jack- property. form of marital at 82 Id. Golden, braced the doctrine in Golden v. son, J., dissenting). Cal.App.2d (1969), Cal.Rptr. following and stated the rule: attempt The instant case is the fourth in property” pro- case, in good Utah to create “new a divorce will of the [I]n My colleagues coop- professional practice fessional arena. have husband’s as a sole embracing by uncritically practitioner erated a new should taken def- into consid- equating “goodwill” “reputa- determining inition in with eration the award to the tion,” agree matter, I discussed below. that we wife.... a matrimonial [I]n equity practitioner must strive for and fairness in di- of a sole husband actions, continue, agree intangible I vorce but do not with the with the same granted equitable Supreme 1. The Utah Court has Dr. Mar- er the issue of restitution. Martinez Martinez, (Utah 1988). petition tinez’s for a writ of certiorari to consid- 765 P.2d 1277 protec- during marriage. spousal support equal Un- and denial of it had tion.” Id. at 85. community property principles of der wife, by position of law, virtue of her EXISTENCE OF wife, same contri- made to that value the PROFESSIONAL GOODWILL hus- as does wife to bution formulas, Judges, like valuation dur- earnings and accumulations band’s leapfrogging question over the threshold marriage. particu all in a whether exists at Cal.Rptr. at 737-38. business, moving directly lar involving professional cases California the issue of what of that argue even goodwill after Golden did not Marriage is. The court in In re pro exist in a whether can about 103 Wash.2d 692 P.2d 175 Instead, they assumed fessional . first, (1984), a stab takes at existence valu in goodwill could and did that such both second, ultimately ation but caves exist, put a and focused on how to fact comingles the two issues: Marriage price tag E.g., on it. In re surrounding rele Two areas the [factors Fortier, Cal.App.3d Cal.Rptr. goodwill, to valuation of set out vant (1973); Lopez, 38 Marriage In re Marriage Lopez, Cal.App.3d (1974); Cal.Rptr. In Cal.App.3d (1974) 113 Cal.Rptr. adopted Foster, Cal.App.3d Marriage re Fleege, re 91 Wash.2d more Cal.Rptr. 49 As discussed (1979),] must be clari below, this shift in focus has two fully (1) step the first fied: evaluation [of (1) broad, results: the use of unfortunate factors is the goodwill] Fleege under “goodwill,” only in the new definition good of the existence determination context, equates (2) accounting ap will and several (2) reputation; personal it with methods the trial praisal may be used every assumption that exists conjunction Fleege court request professional practice, relieving the factors. that it proving of the burden of ing party Lopez that evalua- warned exists. con- must done with tion Tracking the elevation of carrying siderable care caution. California, goodwill from dicta to law warning instructed out this the court one writer has summarized: first deter- the trial courts should years just ... California Thus particular if in a mine exists quotation from a law passing a carried busi- practice. every professional Not goodwill now could be encyclopedia that necessarily has going as a concern ness professional practice, to part of a sold as Washington The goodwill. Fortier, acceptance, pro- clear a recognized this cases to date have accounta- was an asset fessional today. inquiry do so preliminary and we property upon hypothetical sale as a ble omitted). (citations Hall, at 692 P.2d marriage dissolution. at states, Unfortunately, the court then Hall on Mar- dur Lurvey, place Goodwill preliminary inquiry “This takes Professional An- The Property process. Is it riage general Dissolution: evaluation Alimony?, 52 CaLState mind that there Name court must bear in other trial result, Thus, (1977). Lurvey goodwill.” zero even may Bar J. Id. goodwill is claims, Hall, meth- a “confusion of rules and the existence of is after valuation, by compounded by inconsist- determined a calculation going ods for determining has a val concep- it logic application whether and formula encies value, “One ue; if it has a then it exists.2 possible duplication problems over tual two-step ognition determina- preliminary of the need for a approach, begs 2. This existence, tion: adopted is question similar to rule, Mitchell, clearly general should "the court court in As a Arizona Mitchell any (1987), to have despite whether it finds the rec- state Ariz. [approved or more may Thus, methods tion. every professional who does valuation] Fleege conjunction be used in with the employee4 work as a salaried automati just factors to a achieve and fair evaluation cally has every profes because any profes of the existence and value of sional has all or most of these factors. goodwill.” sional’s at 180. My colleagues in adopt this case the Cali- Fleege Hall, factors referred to in Washington approach fornia and and make P.2d at which are also the factors set the same unfortunate posi- mistake. Their Lopez, professional’s forth in age, are the tion, down, boiled non-salaried health, past earning power, demonstrated professional person’s reputation “good- professional reputation community and, therefore, will” property. Failing to skill, judgments, to his knowledge3 as necessity discern the preliminary comparative professional and his fac- success. Fleege finding, But these are the factors outlined in tual supportive based on evidence Lopez to the valuation relevant as record, professional that such good- goodwill, not its existence. exists, majority opinion jumps right 1138; Fleege, Lopez, 588 P.2d at into valuation of Dr. Sorensen’s Cal.App.3d Cal.Rptr. at 68. Thus, sleight after this bit of of hand in California, professional goodwill Hall, Washington uses the same factors to Here, doctrine my found its roots in dicta. professional goodwill determine both that colleagues they think have found identical exists and that it has some value. Then Gardner, Gardner v. roots dicta the amount of that determined (Utah 1988). Gardner, how- with the aid of an who is to use one ever, Justice Stewart was concerned that approved According five formulas. parties’ experts exists when a ly, goodwill had failed to address health, record, a financial track reputa of an established business or- so, value, goodwill, successfully completed, if its and how it he would not have Poore, arrived at that value.” Poore v. goodwill” upon "new to be divided N.C.App. divorce, 331 S.E.2d 266 How- although high virtually income is ever, because the trial court stated that the same. gross approach utilized the fee advocated result, The court in Hall reached this absurd appellee’s expert, own and the valuation was professing to see a distinction with a difference reasonably supported by expert in the record profession- between salaried and non-salaried testimony, we find no error. Hall, forty-year-old professor als. Dr. Judith University Washington, at the had received a Fleege states that the value of 832,750 842,000 salary increase from around partially can be determined based "widely pub- the time of the divorce. She was professional’s "reputation community enjoy[ed] reputation lished and as one of the skill, judgment, knowledge.” Fleege, top physicians in the nation in the field of 588 P.2d at 1138. But case it cites as author- pediatric genetics.... Numerous medical ity engendering goodwill, for the elements schools across the nation offered her em- ha[d] Giant, Estate 57 Wash.2d 860,000." ployment up with salaries (1960), involved Pacific Iron and Metal Washington Supreme 692 P.2d at 176. The Company, partnership, a business and referred held, law, Court as a matter of that a salaried only "reputation honesty and fair deal- employee good- such as Judith Hall cannot have ing.” Weitzman, will. Id. at 178. But see L. The (1985) (suggesting Divorce Revolution 122 the Significantly, primary 4. the reason Dr. Sorensen already California courts and others have laid goodwill” would have the "new is because he necessary finding "goodwill" the foundation for elected to work for himself as a non-salaried too). employees ap- in salaried The Hall court professional rather than work for someone else parently "only reached this conclusion because salary. example, lawyer for a For assume a practicing professional has a business or wrongful solo who has five winnable to which the can attach.” death cases on hand. When he wins or settles cases, 692 P.2d at 178. Was not Judith Hall a goodwillers” those the "new attribute not, practicing professional? Did she like her to him because he will have excess physician profes- earnings average husband who worked for a lawyer above what the salaried health, However, corporation, reputation sional also have makes. if he were to take his cases to firm, over, knowledge, lawyer comparative pro- another turn for skill and them agree high salary to work on them for a until fessional success? Clinic, Ogden per- depends profits not asset on future it can ganization, the Thus, reputation produce. concept the economic Mr. Gardner: sonal on the fact that focuses an estab- Clinic, Ogden The of which Mr. Gard- greater profits lished business can make member, a ner is is well-entrenched new of its than businesses because internal institution, twenty-three whose members relationships; and external once the reve- together orga- in a business have banded relationships produced by capi- nue these is likely highly nization. It is talized, it can be viewed as an asset of the earnings interruptions susceptible to be- business, i.e., goodwill. Id. at 214. ill health of one its mem- cause Ogden entirely Clinic is not bers. The contrast, legal concept In of goodwill valueless_ Mrs. Gardner’s account- focuses on the idea it is an asset higher business much ants value the generates earnings. excess Be- gave Mr. Gardner Neither [than does]. legal concept cause the has not been good to the will inherent consideration existing accounting fitted into the clinic. however, framework, experts economic omitted). (footnote The foot- at applying had difficult have time clearly good- refers to this text also note concept. legal concept particular, business, as an of a not of a asset clearly does not differentiate ex- between gen- ability of a business to person. “The cess returns to excess individuals and patronage its erate income from continued This is returns to businesses. confusion good commonly referred to as will.” Id. is especially pro- noticeable the case of n. at 1080 practices. fessional accounting Ogden both the and economic twenty-three The member Clinic literature, goodwill is an asset of a busi- perfect contrast earnings in excess of nor- ness based highly one-man dental which is profits. intangi- It is mal based on earnings interruptions from susceptible to marketable, ble, generally existence but Moreover, well, many he can causes. when relations a business established day only many hours a and that work so customers, employees, suppli- production. opportuni- His the end not view analysis ers. same would negligible. earnings are ties to increase being in an individ- goodwill as reflected recog- As the seems to court Gardner profits If of a business are ual. excess nize, of/ nonlegal traditional definitions individual, individ- to an attributable asset goodwill focus on it as the of busi- capture that value ual should be able to ness, not of an individual. higher wages. appropri- It would concept focuses on its used accountants “repu- personal attributes as ate view through process, a deductive measurement “goodwill.” By than tation” rather as Parkman, on its nature. The Treat- inter- using reputation and in Divorce ment Goodwill of Professional changeably, the have created courts Fam.L.Q. Proceedings, 18 evaluation confused situation Thus, aimed criteria for their professional businesses. measured, such something that can be at 215.5 Id. at made earning power payments excess practice, goodwill can a re- In a an established value of in excess of business, not in the individ- economists, but of an exist To source. Id. evaluation, Parkman, these then turn to fields an economist Professor Allen go- University they lawyer of New realize the confusion that who teaches have to Management, at- say Anderson School there Mexico’s If the courts to be created. case law to the lack confusion in the tributes the of is goodwill a sole when there any goodwill, on a clear definition of focus per- accounting or economic none from an opinion majority this shares. case spective, problem created. of evaluation is a obviously in a can define terms courts orange apple saying is an is like that an It then, meaning in differs from their manner that protests from an even in the face However, they accounting if economics. practicing profession. A large pro- ual ANALYSIS OF VALUATION METHODS AND organization FORMULAS APPLIED TO can have fessional business “NEW” GOODWILL goodwill. Ogden substantial Clinicfits example organization given of such an The majority asserts that the valuation by Parkman. at 216. It procedure by Austin, See id. does not employed Dr. Mrs. expert, Sorensen’s one professional’s directly commonly have one name used by brokerage his firm and is also consistent it; associated patients with come not be- methodologies recognized ap any particular profes- cause of individual proved jurisdictions. in other are they But sional, their but because of own needs and not sure employed: about the method he delivery past high quality the clinic’s “Although specifically by stated either price If sold service. that clinic for a party, appeared Dr. to a part Austin use in greater tangible than of its the value as- methodology market value to Dr. sets, excess, goodwill, the value of that Sorensen’s dental A market val presence would not be based on at the approach ue approval cited with been any particular clinic of employee profes- see, jurisdictions, other e.g., sional. Hall, 175, 180 103 Wash.2d (1984)....” practice supra. Actually, Footnote solo fits gross Austin used his own revenue extreme, example, Parkman’s the other at capitalization and merely formula labeled opportunities goodwill the limited approach. method a “market value” professional practice, a small even one that Gross automatically revenue formulas at smoothly operated. patients See id. His every professional tribute to be high quality come because of service. He every professional cause has revenue. employees, equally has a but qualified few Hall, Washington Supreme Court people readily available. Patients approved professional goodwill five valua- not necessarily would return to his office methods, including tion capitalization three just they gone location because had to a capitalization formulas based on of net doctor there A before. new doctor would profits, case, gross not of revenue. In this pay practice for his much in excess of Austin did not use the market value meth- tangible the value of his assets and ac- od, by described the court in fol- Hall as counts receivable. lows: By original distorting the definition of method, The fourth the market value equate business with such approach, sets a subjective reputation personal factors as establishing price what fair context, professional practice the ma- would be open obtained current decision, on, jority’s cases it like the relies market if the were to be sold. This method necessitates that profes- fabricates the existence as as sold, recently sional has been belonging every pro- asset non-salaried process being is in the sold or is the fessional, practice, part- in a solo whether subject purchase. a recent nership, professional corporation. I offer be- added),6 (emphasis at objective lieve an threshold standard for determining Thus, the existence must although approves Hall only approach be enunciated. market value based on a current 23.05[2](a) (J. agricultural expert, asking analysis Property McCahey § at 23-66 ed. 1988), prompting apple’s courts citrus content. some to insist on the Parkman, accounting capitalize use of formulas that ex- The Treatment Good- of Professional These, however, earnings. cess Proceedings, Fam.L.Q. have their own will in Divorce faults, problem including estimating tangible consistent return on "normal” assets "past valuing pro- earnings Even this sales” method of which to "excess" measure and the subject leeway given appraiser fessional broad has been criticized as to choose accurate, 29-44, manipulation necessarily capitalization Id. § and not rate. 29.05[3][c] e.g., see Distribution Valuation and Marital issue, practice remaining Aus- one particular property at flaw the sale of the distri- only past approach that tin used a sales bution this case. The trial court never practices, sales other sales involved six examined—and none of the evidence ad- appraisal prices generated by firm at his intangible dresses—whether the asset of by its methods. number created goodwill professional acquired was before (two years) is too year each for three sales marriage or the after vows. any to market and none were few establish Here, recognize trial the court did a tim- vicinity Roy, or Coun- the Utah Weber ing problem expert’s the with valuation They time ty, are too remote both Utah. Mrs. methods. Sorensen’s did not place to be reliable indicators of the pay attention to the time when Dr. Soren- Sorensen’s goodwill acquired reputation “goodwill.” sen his or only found that reasonable “[t]he majority, I courts the believe Unlike way proportion to value said is to accepting not be hoodwinked into should upon years parties it based the the have par- testimony offered one the valuation during practice.”7 been married There is other, ty just one sounds or the because support finding. no to that To evidence If ex- the other. both more credible than contrary, there evidence that virtual- field, perts out in left the court should are all, all, practice, if ly not of the value of the ignore require provide to them or counsel including or goodwill reputation, was analysis. proper data and pre-marital Sorensen’s asset. Dr. Soren- that, TO DETERMINE WHETHER adjusted FAILURE when sen’s evidence showed CAREER THE PROFESSIONAL’S inflation, earnings profes- net his from ACQUIRED BEFORE ASSET WAS essentially the at sional services were same MARRIAGE marriage the time at the time of as his divorce. The number of clients had in this case Even if there was evidence Thus, decreased. there was no increase finding goodwill a on which to base goodwill reputation dur- the value of in Dr. exists marriage. Whatever it was and if evidence to and even there was credible value, it Dr. Sorensen’s goodwill, there is whatever its support the value of that Comment, Valuing, Dividing great important Identifying, a It is note that there is Community Property earnings at opinion Goodwill as to deal of diverse whether Professional Dissolution Community, 56 Tul.L. capi- Marital professional practice from a should be omitted). (1981) (footnote so, Rev. 333-34 applicable. all if what rate is talized at capitalization point out Critics of the use yet brought question before the A not accounting ap- generally accepted that a pre-mari- issue of the existence courts is the earnings praisal principle is be spouse goodwill practitioner hits when the tal they capitalized only it can be assumed where of his well after commencement married the context of will continue in future. quite significant. practice. This could become therefore, professional practice, a court em- a example, who had been years For is, approach ploying direct- the formula either twenty mar- or more could ly implicitly, placing marriage a value on future ry dissolve the short time and then Yet, are, earnings often Presumably and results. courts the value of the later. point explanation, quick marriage adequate without date of the would accrued as of the they doing. separate out are not so form a sort be and would omitted). (footnote Only during at accrued § 29-46 basis. 29.05[3][c] Often, paying community property. Its up marriage for the ends would be by calculating earnings. be determined with future value could new accounting as of difficulty for- the value of these difference between [Another] goodwill] valuing of dissolution and value as the date mulas [for high marriage. ac- may Since inappropriately date of that the result rate, pension bene- may as are crued at a constant than contrib- since factors other instance, simple application time-based fits, if For to the excess ute physician income. on the date percentage a week in- works 60 to hours formula earnings would dissolution the usual 40 to the excess stead of suffice. (footnote Comment, omit- may supra note generated this additional effort added). ted) (emphasis goodwill. attributed asset, pre-marital not a marital asset.8 to Mrs. Sorensen because there no evi- justify dence to returning it to Dr. Since Dr. Sorensen his owned career as- pre-marital Sorensen as his asset. set, his “goodwill” prior its marriage, that asset should be treated as separate property,

his to be awarded himto exigent

at dissolution in the absence of faced by

circumstances the trial

fashioning equitable property, awards of

support, and alimony, circumstances

present Preston, here. See Preston v. (Utah 1982); see also Morten- Utah, STATE of Plaintiff and Mortensen, sen v. Respondent, 1988) (Zimmerman, J., concurring). Eugene DAVIS, Thomas Defendant CONCLUSION Appellant. I summary, my dissent from col- No. 870221-CA. leagues’ yet creation of species another property through new their broad redefini- of Appeals Court of Utah. tion of professional practice Feb. context, and from their erroneous approval of valuation unacceptable factors and an

valuation method as a substitute for evi-

dence goodwill, existence of however alimony awards,

defined. plus Traditional

nonmodifiable rehabilitative reimburse- awards, alimony

ment appropriate, where

offer the achieving equity best methods for

and fairness in Utah. if I agreed

Even the majority’s

analysis disposition issue, I would nonetheless vacate

the trial part court’s award of of the value analysis, recently

8. Another method forth set at 444-45. current of this income thought-provoking stream, Professor Parkman in a capital, personal his human is a asset. article, law review better demonstrates that Dr. See id. at precise- That asset his, income-producing ability ly produce because it will a stream of future Parkman, Recognition not theirs. See returns. case, Id. at 439-^0 4.& n. Even in a closer Capital Property Human in Divorce Settle- where a married still while ments, 40 Ark.L.Rev. 440-49 student, medical Parkman advocates treatment (or Sorensen someone other than Mrs. Soren- an investment in self one’s as non-marital sen) made all the essential investments in the property: knowledge permits skill he has that him to doctor, major For a medical increase in generate income excess of the he income anticipated his future income stream occurs strength could derive from innate and intel- school, when he enters medical because the himself, ligence. His investments in in- probability very high that he finish. will expected creased the future income stream already ... [T]he critical investments had oc- him, completed would flow to were six least curred when student entered medical years prior marriage. Usually, to his school.... greatest impediment attaining access circumstances, Under normal invest- probably education is not the capital prior marriage ment in human education, difficulty direct costs of the but the large be so and essential relative to invest- obtaining ability gain admission. The marriage ment after individual’s hu- capi- admission is result of earlier human admission, capital separate man should be treated as tal investments. After most graduate property. substantial cost of education usually the income sacrificed the student. Id. at 448.

Case Details

Case Name: Sorensen v. Sorensen

Court Name: Court of Appeals of Utah

Date Published: Feb 10, 1989

Citation: 769 P.2d 820

Docket Number: 870102-CA

Court Abbreviation: Utah Ct. App.