Court Opinion

ID: 9602492
Source: CourtListenerOpinion
Date Created: 2023-08-22 01:56:01.5398+00
Date Added: 2024-06-11T10:53:58.614131
License: Public Domain

*325Rosellini, J.
On this appeal from a decree of marriage dissolution, entered April 13, 1976, error is assigned to the Superior Court's determination that the goodwill of the husband's dental practice was not an asset subject to division as a part of the community property.
The parties, who were both 58 years of age at the time of trial, had been married for approximately 32 years. They have five children, and the appellant, trained as a dietician, has not been gainfully employed during the marriage.
The respondent is a dentist, from whose practice the net profits in 1975 were $106,452.61. At the trial, the appellant presented the testimony of two certified public accountants, both of whom served clients in the medical and dental professions, who testified that the value of the respondent's practice included a goodwill factor, which had a present value. One of these set the value of the practice (evidently including accounts receivable and tangible property) at approximately $200,000. The other gave his opinion that the value of the goodwill would be equal to the gross receipts over a 2- to 3-month period. One of the experts stated that the respondent's net annual profits exceeded those of the average practitioner by approximately $50,000.
Challenging this expert testimony, the respondent produced a dentist who declared that he had never known of a dentist selling his practice and including a factor of goodwill amounting to more than a few dollars.
Despite the overwhelming evidence of the existence of an element of goodwill in the respondent's practice, the court refused to include it as an asset subject to distribution. In this the court erred.
Goodwill is property of an intangible nature and is commonly defined as the expectation of continued public patronage. In re Marriage of Lukens, 16 Wn. App. 481, 558 P.2d 279 (1976); In re Marriage of Foster, 42 Cal. App. 3d 577, 117 Cal. Rptr. 49 (1974). Among the elements which engender goodwill are continuity of name, location, reputation for honest and fair dealing, and individual talent and *326ability. In re Estate of Giant, 57 Wn.2d 309, 356 P.2d 707 (1960).
At the time this case was decided in the Superior Court, no appellate court in this state had ruled upon the question whether goodwill can attach to a professional practice, as well as to a commercial business. Subsequently, the well-considered opinion in In re Marriage of Lukens, supra, was published. In that opinion, conflicting arguments which are also presented in this case were analyzed, the authorities examined, and the conclusion reached that goodwill is indeed a factor which has value to a professional person and should be included among the assets distributed upon a marriage dissolution. We approve both the reasoning and the result reached in that case.
As the Court of Appeals pointed out, while the goodwill of a professional practice may not be readily marketable and the determination of its exact value may be difficult, that element may nevertheless be found to exist in a given professional practice. The determination 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 comparative professional success.
A dentist who has practiced many years and established a good reputation can expect his patients to return to him and to speak of him in a manner that enhances that reputation and encourages others to seek his services. Also, he can expect a large number, if not most, of these patients to accept as their dentist a person to whom he sells his practice. These prospects are a part of goodwill, and they have a real pecuniary value.
The respondent argues that the goodwill of a dental practice is not "true" goodwill, because it cannot be successfully transferred to a purchaser^vithout certain services being performed by the practitioner. These services consist of introductions to the seller's patients and encouragement of patients to accept the buyer as their dentist. He insists *327that the amount purportedly paid for "goodwill" is in fact paid for these services, and represents "future earnings" which are not subject to division as community property.
The testimony of the accountants, both of whom had large numbers of doctors and dentists among their clients, shows, however, that goodwill exists in a going practice, whether or not a sale is in the offing. Documents brought to this court by the respondent indicate that prospective purchasers are interested in the quality of the practice — not merely a dentist's willingness to introduce them to patients. They show that subsequent to the entry of the decree below, the respondent attempted to sell his practice through ads in professional periodicals. Numerous similar advertisements appeared in these journals. Each describes the thing for sale as a dental "practice." Only one or two contain an offer to stay and introduce the purchaser to the seller's patients. But assuming such services are necessary, they are not the thing sold as "goodwill," but simply the means of transferring it.
In any event, the important consideration in this marriage dissolution case is not whether the goodwill of the practice could be sold without the personal services of the respondent to effectuate its transfer, but whether it has a value to him. This fact is well brought out in In re Marriage of Foster, supra, where it was conceded that the goodwill of the appellant's medical practice was community property subject to distribution, the only question being whether the proper method of evaluation had been used in the lower court. There had been no testimony as to what a willing buyer would pay or a willing seller would accept for the goodwill of the practice. However, a certified public accountant, declared by the court to be a proper expert in the matter, had given his opinion of the value of the goodwill in the doctor's medical practice. 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 *328pay 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 marriage. 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 husband 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.)
(Footnote omitted.) In re Marriage of Foster, supra at 584.
The respondent's ads in professional journals proclaimed that his practice grossed over $225,000 per year, a fact which would have been of no interest to a prospective buyer if all that was being purchased was the respondent's equipment and accounts receivable (the only aspects of the practice to which the trial court attributed value). This and other advertisements appearing in the journals constitute convincing evidence that there is a market for the sale of dental practices, and that such practices include more than equipment and accounts receivable.
The respondent sold his practice to his son within a year after the decree was entered, thus relieving himself of the obligation to make support payments under the decree. The purchase price was $80,000, which was approximately $32,000 more than the value of the equipment and accounts receivable which was found by the trial court. Furthermore, the accounts receivable had been reduced by $5,000 at the time of the sale. While the respondent avers' and the contract of sale recited that none of this $37,000 was attributable to goodwill, he offers no other explanation for it. Not only does the selling price reflect an amount paid for the *329intangible value of goodwill, but it can be assumed that a father, selling to his son, would be less inclined to demand the full value than he would be if he were selling to a stranger.
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. See Annot., Accountability for Good Will of Professional Practice in Actions Arising from Divorce or Separation, 52 A.L.R.3d 1344 (1973). 38 Am. Jur. 2d Good Will § 8 (1968); 38 C.J.S. Good Will § 3 (1943) and § 3 n.41 (Supp. 1978). California, a jurisdiction whose liberal approach with respect to community property we adopted in Wilder v. Wilder, 85 Wn.2d 364, 534 P.2d 1355 (1975),1 is firmly committed to this view. That the goodwill of a profession is a salable asset has long been recognized in Oregon. See Thompson Optical Inst. v. Thompson, 237 P. 965 (Ore. 1925), wherein many cases involving the sale of medical practices are cited. The New Mexico Supreme Court has recently said that the better rule is that goodwill exists in a professional practice and is salable. Durio v. Johnson, 68 N.M. 82, 358 P.2d 703 (1961).
Another persuasive case is Rees v. United States, 187 F. Supp. 924 (D. Ore. 1960), aff'd, 295 F.2d 817 (9th Cir. 1961). That was an action for the refund of certain income taxes. The taxpayer, an orthodontist, had entered into a partnership with other dentists, who had paid him $35,000 for the interest which they thereby acquired in the goodwill of his previous practice. It was argued that since the dentist's professional skill and reputation were taken into account in arriving at the purchase price, the entire amount could not be classed as a capital asset. This proposition was rejected, the court remarking that such factors were of the *330kind that any practical businessman would have considered in determining what he would pay for the goodwill of a business or profession.
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. Just as in other areas of the law where precise proof cannot be made, such difficulty does not constitute an insurmountable obstacle. Where, as was the case here at the time of trial, a professional man is approaching retirement age, the salable value of his practice should also be approximately determinable and is a factor to be taken into account.
The cause is remanded to the Superior Court with directions to determine the value of the goodwill of the respondent's practice, as it existed at the date of dissolution, taking into account the testimony of the experts and the other factors which we have mentioned. The court may call for additional evidence if that is deemed desirable. The property distribution should be revised accordingly.
Wright, C.J., and Hamilton, Utter, and Hicks, JJ., concur.

The held there that a retirement pension, although it had not vested at the time of a marriage dissolution, should be taken into consideration in making the community property distribution.