Opinion ID: 1394944
Heading Depth: 1
Heading Rank: 1

Heading: Fair Market Value of Richard's Interest in The Avenue

Text: Richard sold his interest in The Avenue to his brother John for an unsecured, non-transferable note for $54,500 payable over 10 years at 10% interest. [4] Expert testimony established that the value of such a note, even if it were transferable and fully secured, was at most 60-72% of its face value. In reality, the sale brought less than $39,240 (72% of $54,500). [5] Kim provided expert testimony from an accountant that the value of Richard's interest in The Avenue on December 31, 1984 was $132,000. [6] This value was based on the capitalization of earnings method for the value of the liquor license and good will, plus the cost value of the real property. In Rostel v. Rostel, 622 P.2d 429, 430 (Alaska 1981), we held that the value of a close corporation, held as marital property by a divorcing couple, properly included the value of its good will as well as the value of its physical property and accounts receivable. See also Marriage of Foster, 42 Cal. App.3d 577, 117 Cal. Rptr. 49, 52 (1974); Marriage of Goger, 27 Or. App. 729, 557 P.2d 46, 47-48 (1976); Marriage of Lukens, 16 Wash. App. 481, 558 P.2d 279, 282 (1976) (professional practices have good will value). The capitalization of earnings method is one generally accepted method for evaluating the good will of a business. See In re Marriage of Hall, 103 Wash.2d 236, 692 P.2d 175, 179 (1984). See generally Comment, The Recognition and Valuation of Professional Goodwill in the Marital Estate, 66 Mar.L.Rev. 697 (1983); Comment, Identifying, Valuing, and Dividing Professional Goodwill as Community Property at Dissolution of the Marital Community, 56 Tul.L.Rev. 313 (1981). The trial court's finding that the sale was made at fair market value was clearly erroneous for the following reasons: (1) Richard did not even recover the amount of his investment made more than a year earlier; and (2) he got nothing for his share of the good will.