Opinion ID: 1309775
Heading Depth: 4
Heading Rank: 3

Heading: Business Good Will

Text: Both Judge Taylor and Judge Carlson found that Marsha was entitled to property to offset one-half the value of Moffitt Contracting (which was awarded to Doug), including the value of its good will. Both judges found that the value of the good will was one-third of the value of its assets, or about $200,000. Doug argues that this finding is clearly erroneous because it is entirely unsupported by the record. We agree. A finding is clearly erroneous if it is unsupported by anything in the record. Miller v. Miller, 739 P.2d 163 (Alaska 1987). Marsha testified that she believed the business good will was worth $300,000. Doug's attorney suggested that the good will was worth $10,000. Judges Taylor and Carlson apparently chose a compromise figure somewhere between these two. This is not a valid method for valuing business good will for purposes of property division in a divorce proceeding. Preliminarily, the trial court must decide whether good will exists. If the trial court finds good will exists, it then must determine whether the good will could actually be sold to a prospective buyer. If the trial court determines either that no good will exists or that the good will is unmarketable, then no value for good will should be considered in dividing the marital assets. [3] Conversely, the good will should be considered if the evidence suggests that it has value and is marketable. In that case, the trial court should use one or more principled methods of valuation. [4] In Pattee v. Pattee, 744 P.2d 658 (Alaska 1987), we observed that capitalization of net profits is one recognized method for appraising business good will. We cited In re Marriage of Hall, 103 Wash.2d 236, 692 P.2d 175, 179 (1984), where the Washington court recognized five methods for valuing good will. These include: (1) capitalization of net profits (or straight capitalization); (2) capitalization of excess earnings; (3) the IRS method, which subtracts a reasonable rate of return and salary from average earnings; (4) the market value approach; and (5) the buy/sell agreement method, based on an actual transaction. Hall, 692 P.2d at 179-80. We reverse and remand for reconsideration of the good will issue because the trial court's findings are not supported by substantial evidence in the record.