No. 85-275 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1986 

IN RE THE MARRIAGE OF 

RONALD KEITH HULL, 

Petitioner and Appellant, 

and 

JANE ANN HANKS HULL, 

Respondent and Respondent. 

APPEAL FROM: District Court of the Eighteenth Judicial District, 

In and for the County of Gallatin, 

The Honorable Joseph B. Gary, Judge presiding. 

COUNSEL OF RECORD: 

For Appellant: 

Harrison, Loendorf & Poston; John P. Poston, Helena, 

Montana 

For Respondent: 

Morrow, Sedivy & Bennett; Edmund P. Sedivy, Jr., 

Bozeman, Montana 

Submitted on Briefs: Oct. 31, 1985 

Decided: January 21, 1986 

Filed: 
Mr. Justice Fred J. Weber delivered the Opinion of the Court. 

In November 1983, the Gallatin County District Court 

entered a decree of dissolution of the marriage of Ronald K. 

Hull (husband) and Jane Ann Hanks Hull (wife). In February, 

1985, the findings of fact, conclusions of law and judgment 

were entered with regard to property distribution, 

maintenance and support. The husband appeals. We affirm in 

part and reverse and remand in part. 

The issues for review are: 

I. Did the District Court erred in determining that 

goodwill of husband's sole professional anesthesiology 

practice is a marital asset subject to property division in a 

dissolution of marriage? 

2. Did the District Court err in setting the value of 

the goodwill attributable to the husband's anesthesiology 

practice? 

3. Did the District Court abuse its discretion in 

distributing the marital property without regard to a portion 

of the debt payable by husband? 

The parties were married in 1971. At that time the 

husband had completed medical school at the University of 

Kansas and the wife had completed her training as an 

el-ementary teacher. During the next few years the husband 

was completing his residency training in several specialties, 

ending with anesthesiology. During the same time, the wife 

did some teaching but was unable to find full time teaching 

iobs in most places. In 1-976, the parties moved to Alaska 

where the husband practiced private anesthesiology for one 

year. At that time the parties adopted the first of two 

children. The wife then became a full time mother. In 1977, 

the family moved to Bozeman so that the husband could begin 

the practice of anesthesiology. Since that date the husband 

has been doing business as a professional corporation, 
working in a co-operative arrangement with two other 

anesthesiologists in sharing an office. These three doctors 

perform anesthesiology in Bozeman Deaconess Hospital on a 

basis whereby they set up their own schedules and rotate the 

patients as they require services. Essentially these three 

have a monopoly on the anesthesiology practice in Bozeman, as 

the only other person giving anesthetics is a general 

practitioner who does not work nights. The husband's 

practice is based in the hospital and he does not follow-up 

or see patients in an office. The anesthesiologist is 

normally assigned to a patient by room number and neither the 

surgeon nor the patient normally select the anesthesiologist. 

During 1982, and immediately prior to the parties' 

divorce, the three anesthesiologists each earned 

approximately the same annual net income, being something 

over $130,000. This net income figure includes their 

respective contributions to their own pension plans. In 1982 

the husband received $104,085 net salary and contributed 25% 

of his gross salary, $26,021.29 to his pension plan. During 

each of the past five years, the husband's salary has 

increased. 

At the time of the divorce, the husband was 39 and the 

wife was 37 years of age. Since residing in Montana the wife 

has pursued a master's degree in counseling and is seeking to 

obtain certification as a drug and alcohol counselor. She 

testified that she was interested in obtaining a Ph.D. in 

clinical psychology and counseling. 

During the marriage the parties acquired a substantial 

amount of property. Because of the nature of the issues, we 

will set forth the description of the assets and the values 

fixed by the District Court: 
NET ASSETS TO WIFE 

Cash value - N.W. Mutual 

Life Insurance 

Pension profits sharing plan 

Cash on hand 

House 

Silver 

Dodge car 

Furniture 

Sapphire ring 

Trailer 

Alaska land 

Pay mortgage on house 

Tnterest in profit sharing plan 

Gun 

TOTAL 

NET ASSETS TO HUSBAND 

Ranch 

Heifers 

Farm equipment 

Tools 

Furniture 

1977 Subaru 

Corporation book value 

Pension profit sharing plan 

Cash on hand 

Equitable policies - cash value 

SUBTOTAL $272,205.00 

Less mortgage indebtedness to 

be paid by Petitioner [mortgage 

debt on house distributed to 

wife] 

TOTAL 

As pointed out by the District Court, the real bone of 

contention was the assignment of goodwill to the individually 

owned corporate practice of the husband. The wife called as 

her expert witness a CPA who valued husband's professional 

corporation. He valued the net physical assets at $33,000, 

which was the figure furnished by the accountant for the 

husband, so there is no dispute as to that amount. In 

addition, the wife's CPA assigned a going concern or qoodwill 

value to the professional corporation of $103,410. These two 

figures together make the $136,410 listed as corporation book 

value on the District Court list of net assets distributed. 

Husband contends that no goodwill or going concern value 

should have been assigned. 
Did the District Court err in determining that goodwill 

of husband's sole professional anesthesiology practice is a 

marital asset subject to property division in a dissolution 

of marriage? 

No Montana cases have specifically addressed the issue 

of goodwill in a professional. medical practice. The District 

Court set forth a memorandum of authorities upon which it 

based its conclusion. We substantially agree with the 

holdings on the part of the District Court. The District 

Court pointed out that in Cromwell v. Cromwell (1977), 174 

Mont. 356, 570 P.2d 1129, this Court held that there must be 

recognition given to the most valuable asset of the marriage, 

that being the job, education and training of Mr. Cromwell. 

At most this could be interpreted as an implication of the 

recognition of goodwill of a professional practice. 

In the 1973 annotation entitled Accountability - for 

Goodwill - of Professional Practice - in Actions Arising from 

Divorce - or Separation, 52 A.L.R.3d 1344, we find limited 

authority. Starting in 1956 a few California cases recognized 

the accountability for goodwill of a professional practice in 

actions arising from a divorce. On the other hand, Texas 

refused to recognize goodwill. of a medical practice for 

divorce purposes. However, the annotations subsequent to the 

original. article suggest that a majority of the courts are 

assigning goodwill to professional practices. The District 

Court found Platter of Marriage of Fleege (Wash. 1979) , 588 

P.2d 1136, to be well-reasoned authority which was adopted by 

the District Court. In Fleege, the husband was a dentist 

whose expert testified that he had never known of a dentist 

selling his practice and including a factor of goodwill. In 

opposition, the wife produced testimony of two certified 

public accountants who served clients in medical and dental 
professions and who testified that the value of a dental 

practice' ineluded a goodwill- factor, which had a present 

value. These CPA's testified that the dentists' net profits 

exceeded the average practitioner by $50,000 and gave an 

opinion that the value of the goodwill would be equal to 

gross receipts over a two or three month period. Additional 

testimony was given to suggest a total valuation of the 

practice, counting tangible property and goodwill, of 

$200,000. In reversing the lower court and remanding the 

cause for a determination of the value of the goodwill of the 

dental practice as it existed on the date of dissolution, 

taking into account the testimony of experts and other 

factors, the Fleege court made the following statements: 

Goodwill is property of an intangible nature and is 

commonly defined as the expectation of continued 

public patronage. [cases cited] Among the 

elements which engender goodwill are continuity of 

name, location, reputation for honest and fair 

dealing, and individual talent and ability. [case 

cited] 

. . . while the goodwill of a professional practice 

may not be readily marketable and the determination 

of its exact value may be difficul.t, that element 

may nevertheless be found to exist in a given 

professional practice. The d.etermination of its 

value can be reached with the aid of expert 

testimony and by consideration of such factors as 

the practitioner's age, health, past earning power, 

reputation in the community for judgment, skill, 

and knowledge, and his compa.rative professional 

success. 

. . . In sustaining a judgment adopting that value, 

the California appellate court said: 

The value of community goodwill is not 

necessarily the specified amount of money 

that a willing buyer would pay for such 

goodwill. In view of exigencies that are 

ordinarily attendant [upon] a marriage 

dissolution the amount obtainable in the 

marketplace might well be less than the true 

value of the goodwill. Community goodwill is 

a portion of the community value of the 

professional practice as a going concern on 

the date of the dissolution of the marriase. 

As observed in Golden - [v. Golden, 270 

Cal.App.2d 401, 75 Cal.Rptr. 735 (1969)], ". . . in a matrimonial matter, the practice 

of the sole practitioner .husbanb. will 

continue, with the same intangible value as 
it had during the marriage. Under the 

principles of community property law, the 

wife, by virtue of her position of wife, made 

to that value the same contribution as does a 

wife to any of the husband's earnings and 

accumulations during marriage. She is as 

much entitled to be recompensed for that 

contribution as if it were represented by the 

increased value of stock in a family 

business." (270 Cal.App.2d 401, 405, 75 

Cal.Rptr. 735.) 

(Footnote omitted. ) In re Marriage of Foster, 

supra, 42 Cal.App.3d at-584, 117 c~~.RP=. at 53. 

. . . While there have been a number of courts 

which have refused to assign a value to the 

goodwill of a professional practice in a divorce 

proceeding, the modern tendency is to acknowledge 

the economic facts and take such goodwill into 

account. [cases omitted] 

. . . The value of goodwill to the professional 

spouse, enabling him to continue to enjoy the 

patronage engendered by that goodwill, constitutes 

a community asset and should be considered by the 

court in distributing the community property. That 

value is real, and the mere fact that it cannot be 

precisely determined should not deter the court 

from assigning it a reasonable value within the 

evidence. 

While Montana is not a community property state as are the 

states of Washington and California, the principles are 

applicable under the provision of S 40-4-202, MCA, which 

requires a consideration of a multitude of factors, including 

the opportunity of each of the parties for future acquisition 

of capital assets and income. 

We adopt the aria-lysis of the Washington court in Fleege. 

We hold that the goodwill of a professional anesthesiology 

practice may be a marital asset subject to property division 

in a marriage dissolution. 

Did the District Court err in setting the value of the 

goodwill attributable to the husband's anesthesiology 

practice? 

The husband contends that it was improper to assign any 

dollar value to the goodwill of his anesthesiology practice. 

He presented testimony by his own accountant and by the two 
anesthesiologists with whom he is associated in ord-er to 

substantiate the absence of value in a goodwill sense. 

In opposition, the wife presented the testimony of a CPA 

residing in Bozeman who specializes in valuing businesses. 

Because of the strong insistence that goodwill has no value, 

and in order to afford some guidance in other cases, we will 

analyze the testimony of the wife's CPA at some length. 

Mr. Ness, the wife's CPA, submitted a written report 

showing the basis for his valuation, pointing out that he had 

no interest, present or contemplated, in the corporation, and 

that he made the valuation for use in arriving at a property 

settlement in the pending divorce. The pertinent portion of 

the testimony and report of Mr. Ness may be summarized as 

follows: 

Mr. Ness in his practice as a CPA does not do a great 

deal of tax work but does business evaluation type work, 

including extensive work with colleges and universities in 

regard to financing. In making his evaluation he first 

sought authoritative sources from professional organizations 

such as the Institute of Business Appraisers. He quoted the 

following from a work published by the American Medical 

Association in 1981 entitled Valuing - A Medical Practice - - A 

Short Guide For Buyers - and Sellers: 

For the last 25 years medical practices were rarely 

bought or sold. The reason was simple: physician 

demand had exceeded physician supply. A new doctor 

merely opened a practice and patients soon arrived. 

Now there is a growing market for medical 

practices, spurred by the rapid increase in the 

number of physicians, which is far outpacing the 

growth in U.S. population. Because it sometimes is 

harder and takes longer to build a new practice 

today, buying an existing one again is becoming 

attractive to some new doctors. 

He quoted from other authorities, including a Texas dental 

journal which pointed out that in the dental area, the 

advantage of buying an existing practice, even including a 
payment for goodwill, was becoming greater. Mr. Ness reached 

the conclusion that the desirability of living in Bozeman, 

coupled with the limited market available, logically imply 

that the anesthesiol-ogy practice in Bozeman could have 

significant value in excess of physical assets. 

Mr. Ness found in various resource works that the 

general approach was that a goodwill value does attach to a 

medical practice. However, he did not find any widely 

accepted formula for valuing a medical practice. He did 

point out that during the past 10 years, an organization had 

been started which specializes exclusively in the sale of 

medical practices and that such organization advertises 

extensively in the American Medical Association Journal. In 

addition, the journal and other American Medical Association 

publications contain numerous ads for sale and purchase of 

medical practices across the country. In discussing the 

nature of the valuation, Mr. Ness considered the adverse 

effect of the limited population in the Rozeman area, and 

also considered the positive effect of living in the Gallatin 

Valley, which generally is a desirable place to live. 

In order to demonstrate the presence or absence of 

goodwill, he then analyzed the earning powers of the husband 

as compared to other medical doctors in the same profession. 

He used a publication entitled Profile - of Medical Practice 

published in 1981 by the American Medical Association. That 

publication showed that the 1979 average net income including 

retirement benefits, for anesthesiologists in the area of 

Montana, Idaho, Wyoming, Nevada, Utah, Colorado, Arizona and 

New Mexico was $62,000. It also contained a table which 

showed the percentages of that $62,000 figure which were 

earned. by anesthesiologists in different age brackets from 

under age 35 up to age 61 and over. Using that $62,000 

figure, and applying an age factor for an anesthesiologist 
under 35 years of age, Mr. Ness concluded that the 1979 

income to be expected was $58,336. Then using the July 1983 

consumer price index factor for medical care as published by 

the Council of Economic Advisors, he concluded that income 

for 1983 would have increased to $87,224. He compared that 

$87,224 to the $130,106 earned by the husband and concluded 

that the $42,882 difference was a going concern value above 

the normal expected income. He concluded that the goodwill 

value for one year therefore was $42,882. He adjusted this 

for the projected normal increase in the next five years so 

that the remaining excess net income attributable to goodwill 

was $41,364. He then considered a capitalization rate to be 

applied. He testified tha.t the Internal Revenue Service 

regulations contained the current authoritative rulings on 

capitalization rates for determination of goodwill. Those 

regulations show between 15 and 20 percent as a proper 

capitalization rate. He concluded that under all of the 

circumstances he would be more conservative and use a 40% 

rate. He then divided $41,364 by the 40% capitalization rate 

to arrive at the going concern or goodwill value of $103,410. 

He testified that in his opinion the value of the husband's 

professional practice was a total of $136,410, which included 

the $103,410 for going concern or goodwill value. In 

explaining his setting of the capitalization rate at a much 

more conservative rate than the IRS regulations, Mr. Ness 

pointed out that this was a different type of practice in 

which repeat business was not present as would be true with 

an ordinary medical practice. As a result he thought a very 

con.servative capitalization was appropriate and testified 

that 40% was such a rate. 

The husband argues that we should pay more attention to 

the testimony of the two anesthesiologists who practice with 

the husband and to his own accountant rather than adopting 
the viewpoint of the CPA who was hired for analysis purposes 

by the wife. That is not our function on appeal. We 

conclude that the Ness analysis is understandable and 

reasonable and has considered the various fa-ctors which we 

have approved in our adoption of the Fleege analysis. We 

conclude that the evidence submitted by the wife through CPA 

Ness is understandable, substantial in nature, and 

reasonable. 

We hold that the District Court did not commit error in 

assigning the value it did to the goodwill attributable to 

husband's anesthesiology practice. 

Did the District Court abuse its discretion in 

distributing the marital property without regard to a portion 

of the debt payable by husband? 

The District Court in its finding of fact valued the 

pension and profit sharing plan of the husband at a total of 

$117,550. As appea.rs from the list of net assets distributed 

to wife and husband, a one-half interest or $58,775 in the 

pension profit sharing plan was distributed to the wife and a 

similar amount to the husba.nd. In its findings of fact the 

District Court recognized that $55,000 had been borrowed from 

the pension and profit sharing fund by the husband and 

applied toward the purchase of the ranch, which was 

distributed to the husband at a net asset value of $57,339. 

The wife argues that either the ranch net asset value or the 

pension profit sharing plan net asset value must be reduced 

by the $55,000 which petitioner has to pay. That contention 

appears reasonable under the facts of the case. 

As appears from the net asset value list for 

distribution to the wife and to the husband, the court 

apparently considered these as "net" value figures to each 

because it deducted the residence mortgage indebtedness which 
was to be paid by the husband in the amount of $52,216 from 

his net asset valuation to result in a total valuation for 

net asset distribution to him of $219,989. 

We are unable to determine from the record if the 

District Court made a mistake of $55,000 in the amount of net 

assets distributed to the husband. We recognize that the 

District Court had the discretion to award $219,989 in value 

less the $55,000 debt owing, to the husband if it chose to do 

so. However, the record does not clearly show that to have 

been the intent of the District Court. 

We therefore remand the cause to the District Court for 

its redetermination of the portion of the net assets to go to 

the husband as compared to the wife, taking into 

consideration the $55,000 obligation owing by the husband to 

the pension and profit sharing plan. J/ 

We concur: /