Court Opinion

ID: 9860193
Source: CourtListenerOpinion
Date Created: 2023-09-24 23:14:03.530066+00
Date Added: 2024-06-11T11:18:56.647370
License: Public Domain

JUSTICE GREEN, concurring in part and dissenting in part: I concur in part to the decision to affirm most of the judgment appealed, but I would reverse the portion dividing the marital property and remand for a redetermination of that issue. My concern is with the circuit court’s inclusion of a sum to reflect goodwill in the value of the husband’s law practice. The record indicates that the trial court made every effort to be fair and made a $5,000 adjustment to reflect the greater goodwill which was attributable to the experienced senior member of the firm. Nevertheless, I am now convinced that under the circumstances of this case, a sum representing goodwill should not have been included in the valuation of the husband’s law practice as part of his marital estate. Section 503(d)(10) of the Illinois Marriage and Dissolution of Marriage Act (Ill. Rev. Stat. 1985, ch. 40, par. 503(d)(10)) directs that, in dividing marital property once its value has been determined, the court include in its consideration the opportunity of each spouse to acquire income in the future. Any goodwill connected with the husband’s law practice should have been considered only to that extent. I agree that the trend in this State has been to include valuation for goodwill in evaluating the worth of a professional practice. The circumstances of the various professions vary. However, I believe that when the value of the marital estate of a lawyer is in issue, a determination of the value of goodwill should be included in the evaluation of his law practice under only two circumstances. Such a situation would most likely arise if the lawyer’s partnership or corporate agreement provides a method to determine an amount in excess of the value of the tangible assets of the practice to which that lawyer would be entitled upon termination. Such an amount could then be considered as the value of goodwill. The other circumstance which would require and justify an evaluation of goodwill would occur when the marital estate is too small to fairly compensate the lawyer’s spouse by awarding that spouse a sufficient portion of the marital property to reflect the enhanced earning potential of the lawyer-spouse arising from the good reputation and developed clientele of the lawyer’s practice. Under such a circumstance, the policy of section 504(b)(1) of the Act (Ill. Rev. Stat. 1985, ch. 40, par. 504(b)(1)) to avoid awarding maintenance when marital property is available can only be satisfied with fairness to the lawyer’s spouse by attempting to evaluate the goodwill of the lawyer’s practice and enhance its value thereby. Then the court can require the lawyer to make a lump-sum payment or several installment payments to the other spouse to effect a fair division of marital property. My disapproval of attempts to evaluate goodwill connected with a law practice under usual circumstances arises because: (1) to do so gives the other spouse the benefit of double consideration of the factors involved in goodwill; and (2) accurate determination of the value of goodwill is usually impossible. In struggling with the issue of goodwill, I have found the decision of the First District in the case of In re Marriage of Wilder (1983), 122 Ill. App. 3d 338, 461 N.E.2d 447, and an incisive case note discussing that decision (Note, Family Law — Division of Property Upon Marriage Dissolution — The Illinois Appellate Court Grapples With Goodwill in a Professional Practice — Is It Property or Just Another Factor?, 1985 S. Ill. U.L.J. 285), both cited by the majority, to be highly persuasive. In Wilder, the respondent was an ophthalmologist engaged in retinal surgery. He and another doctor of medicine had formed a professional corporation under an agreement whereby upon withdrawal, either would be entitled to a sum based upon the value of listed assets which did not include goodwill. The First District held that in making a division of property the circuit court did not err in failing to consider goodwill in determining the value of the respondent’s shares in the professional corporation regardless of whether such shares were marital property. The First District reasoned that the significance of the goodwill possessed by a professional practice is its ability to enhance the earnings of the professional from the practice. That court then concluded that (1) the factor of income enhancement was to be considered under section 503(d)(10) (Ill. Rev. Stat. 1981, ch. 40, par. 503(d)(10)) in making division of the marital estate and (2) to also consider it in determining the value of the marital estate would permit a double recovery. The only subsequent opinion of a court of review of this State to discuss Wilder is the case of In re Marriage of Rubinstein (1986), 145 Ill. App. 3d 31, 495 N.E.2d 659. There, the marital assets to be divided included the petitioner’s shares of stock constituting a one-third interest in a professional medical corporation. The petitioner was an internist practicing with the other shareholders. The Second District merely noted the Wilder decision but cited the appellate court’s other decisions approving the inclusion of goodwill in evaluating professional practices as marital property to be divided. The Rubinstein court did not discuss the Wilder analysis in any detail but merely stated that “[t]o ignore the intangible asset of goodwill could result in undervaluing the practice *** and thereby lead to an inequitable distribution of the property.” (145 Ill. App. 3d 31, 37, 495 N.E.2d 659, 663.) That court also mentioned that, in In re Marriage of Davis (1985), 131 Ill. App. 3d 1065, 476 N.E.2d 1137, the First District court had cited with approval a quote from In re Marriage of Lopez (1974), 38 Cal. App. 3d 93, 113 Cal. Rptr. 58, approving a determination of goodwill in evaluating a professional practice for division of marital property. The Illinois Bar Journal article cited by the majority is also critical of Wilder. (Davis, Valuation of Professional Practices and Dissolution Cases, 74 Ill. B.J. 14 (1985-86).) That author’s thesis is that section 503(d) envisions first an evaluation of the property to be divided and then a division. The author explains that all income-producing marital assets go through that process, with the court considering all of the elements of value and then making a division whereby the fixture income potential of the spouses from their assets is considered. Examples given are accounts receivable, rental properties, and securities. The article gives some recognition to the fact that the cited assets are readily salable as such, whereas the goodwill of a professional practice is usually not. The goodwill of a professional practice consists of its reputation and developed clientele. Particularly when the goodwill is that of a law practice, it is not readily transferable and is closely related to the qualities of the lawyer in regard to skill and educational attainment. It has been held that an advanced degree does not constitute marital property. (In re Marriage of Goldstein (1981), 97 Ill. App. 3d 1023, 423 N.E.2d 1201.) The fact that the assets cited in the Davis article can be readily sold or preserved for income while goodwill can usually only be effectively used for future income is a strong reason to support the consideration of goodwill only as it bears upon the lawyer’s potential for income. Notably, such a consideration of goodwill is not possible in California where the decision in the case of In re Marriage of Lopez (1974), 38 Cal. App. 3d 93, 113 Cal. Rptr. 58, was rendered because, under the community property rule of that State, marital property must be divided equally. The goodwill of a professional practice unquestionably has some value which usually remains after a particular practitioner leaves the practice. Otherwise, as the Fifth District pointed out in the case of In re Marriage of White (1981), 98 Ill. App. 3d 380, 424 N.E.2d 421, firms would not retain the name of former members whose membership has ceased. However, when the basis of determining goodwill is not set forth in the agreement between the proprietors of a law practice, determination of that value is extremely difficult. The majority has correctly indicated that the formula set forth in Dugan v. Dugan (1983), 92 N.J. 423, 457 A.2d 1, is the accepted procedure for calculating the goodwill of a professional practice, at least one at law. The Dugan theory is that the disparity between the earnings of the lawyer-spouse involved in a dissolution proceeding who has a proprietary interest in the practice and a hypothetical average salaried practitioner represents return on goodwill after an adjustment is made for return on tangible assets devoted to the practice. Even assuming that the lawyers to be compared are of reasonably similar ages and practice in reasonably similar communities, the adjusted disparity can be attributed logically to the reputation and clientele of the proprietary lawyer’s firm only if the lawyers are of equal knowledge and skill. Statistics may be readily available concerning the average earnings of lawyers who share no proprietary interest in their practice and who work similar hours and in a similar community to the proprietary lawyer whose goodwill is to be evaluated. However, adjusting these statistics to include only the earnings of nonproprietary lawyers whose skill and knowledge are the same as that of the lawyer subject to inquiry is virtually impossible. Thus, the result obtained by use of the Dugan formula, although giving a superficial indication of accuracy, is actually highly conjectural. Here, the formula by which the goodwill was evaluated is not readily apparent. In any event, no evidence was introduced to indicate that the agreement between the husband and his father provided a formula for determining an amount to which the husband would have been entitled on withdrawal which exceeded the value of tangible assets of the practice. The marital estate was not too small to fairly treat the wife in division of the marital estate by considering the husband’s earnings merely to show future earning potential and not to try to determine some value for goodwill. With hindsight, I conclude that this is what should have been done.