Opinion ID: 884138
Heading Depth: 2
Heading Rank: 5

Heading: Value of the Stufft Law Firm

Text: David contends that the District Court erred when it determined the value of the Stufft Law Firm. He argues that the District Court overvalued the goodwill of the law firm and assigned that amount to David as an asset in the distribution of the marital property. In In re Marriage of Hull (1986), 219 Mont. 480, 712 P.2d 1317, we discussed the valuation of the goodwill of a professional practice and concluded that the goodwill of such a practice may be a marital asset subject to property division in a marriage dissolution. See Hull, 219 Mont. at 485, 712 P.2d at 1321. In Hull, we adopted the following language from the Washington Supreme Court as part of our analysis and determination of the value of goodwill: The determination of [goodwill] 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 judgement, skill and knowledge, and his comparative professional success. Hull, 219 Mont. at 484, 712 P.2d at 1320 (citing In re Marriage of Fleege (1979), 91 Wash.2d 324, 588 P.2d 1136). In Hull, the husband argued that this Court should pay more attention to the testimony of two members of the same profession who practiced with him, as well as the testimony of the husband's own accountant, than to the testimony of a CPA who specializes in valuing businesses. See Hull, 219 Mont. at 488, 712 P.2d at 1322. We concluded that the CPA's analysis of the value of goodwill was understandable and reasonable and had considered the various factors which we had approved of in our adoption of Washington's goodwill analysis. We further concluded that the evidence submitted by that CPA was understandable, substantial in nature, and reasonable. We held that the district court did not err when it assigned the value it did to the husband's professional practice based on the expert testimony of that CPA. See Hull, 219 Mont. at 488, 712 P.2d at 1323. Similarly, in this case, Mayla presented the expert testimony of a CPA regarding the valuation of the goodwill associated with David's law firm. David maintains that the CPA's appraisal of the Stufft Law Firm's goodwill is inadequate and based on a faulty analysis. The District Court recognized that David's cross-examination of the CPA revealed some inadequacies in the CPA's appraisal; however, the court found that the CPA's appraisal was the most credible evidence presented to the court. David presented no expert testimony to contradict that of Mayla's CPA, and maintained that the law firm was merely worth the value of its office equipment. In comparison, the CPA testified that his expertise for the past ten years has been in the valuation of various types of professional practices. His method of valuing the goodwill of professional practices is to convert the law firm's earnings to a multiple of the gross income, based upon the profitability of the business, and its going concern value based on an ongoing customer group. The CPA relied principally upon the law firm's tax returns to find the fee income of the law firm, then applied a goodwill factor of 25 percent to the value of the business. The 25 percent figure is based upon statistics for similar types of professional practices where the rate of retention of clients is comparable. The amount he arrived at from this equation was exclusive of the underlying assets in the business. The CPA arrived at a goodwill value for the Stufft Law Firm of $43,605. Although David's cross-examination of the CPA raised some relevant questions regarding the method of valuation, David offered no expert testimony which might offer a reasonable alternative to the CPA's valuation of the Stufft Law Firm's goodwill. The District Court, therefore, found that the CPA's appraisal was the most credible evidence presented to the court and concluded that the goodwill of David's law firm is valued at $43,605. Based on the testimony presented in this case, and the fact that it was uncontroverted by any comparable expert testimony from David, we conclude that the District Court's valuation of the goodwill attached to David's law practice was supported by substantial evidence and was not clearly erroneous.