Hanson v. Hanson
738 S.W.2d 429 (1987)
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Rule of Law:
Goodwill in a professional practice is a marital asset subject to division in a dissolution proceeding, but its existence and value must be proven by fair market value evidence, such as a recent sale of a similar practice, and cannot be based on speculation or capitalization formulas tied to future earning capacity.
Facts:
- In July 1973, Dr. Graham and Dr. Hanson formed a partnership for the practice of oral surgery.
- The partnership agreement stipulated that upon a partner's withdrawal, no value for goodwill or the firm name would be included in the computation of the partner's interest.
- Dr. Hanson married Mrs. Hanson on March 20, 1974, after the practice was already established. Mrs. Hanson worked as a nurse throughout the marriage.
- Dr. Graham married Mrs. Graham on May 24, 1969. Dr. Graham completed his oral surgery training during the marriage, and Mrs. Graham, a nurse, later became a real estate agent and managed the couple's properties.
- Both marriages were later subject to dissolution proceedings.
- At the time of the respective trials, both Dr. Hanson and Dr. Graham earned approximately $120,000 per year from the partnership.
Procedural Posture:
- In Hanson v. Hanson, the Circuit Court of Boone County (trial court) dissolved the marriage and valued the oral surgery partnership at $324,862, including an amount for goodwill.
- Dr. Hanson, the husband, appealed to the Missouri Court of Appeals, Western District (intermediate appellate court).
- The Court of Appeals affirmed the trial court's determination that professional goodwill is a divisible asset but reversed on other grounds.
- In Graham v. Graham, the Circuit Court of Cole County (trial court) dissolved the marriage and valued the same partnership at $90,280, finding no goodwill.
- Both Dr. Graham and Mrs. Graham appealed the trial court's order to the Missouri Court of Appeals, Western District.
- The Supreme Court of Missouri (highest court) granted transfer in the Hanson case after the appellate opinion and granted transfer in the Graham case before the appellate opinion, consolidating the two appeals to resolve the conflicting rulings.
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Issue:
Is goodwill in a professional practice a marital asset subject to division in a dissolution of marriage proceeding?
Opinions:
Majority - Robertson, Judge
Yes, goodwill in a professional practice acquired during a marriage is marital property subject to division. Goodwill is defined as the value of the practice exceeding its tangible assets, which results from the tendency of clients to return to and recommend the practice irrespective of the reputation of any individual practitioner. This court distinguished professional goodwill, which is a divisible marital asset, from an individual's future earning capacity, which is not. To prove the existence of goodwill, a party must provide evidence of its fair market value, such as a recent sale of a similar practice or a bona fide offer to purchase one. The court rejected valuation methods based on capitalization formulas because they improperly conflate the individual's future earning capacity with the business entity's goodwill, and property division cannot be based on speculation.
Analysis:
This case establishes a significant precedent in Missouri by recognizing professional goodwill as marital property for the first time. However, the court sets a stringent evidentiary standard, limiting proof of goodwill to fair market value evidence, which is often difficult to obtain. This decision curtails the ability of non-professional spouses to claim a share of what might otherwise be considered the most valuable asset of a professional practice by rejecting speculative valuation methods like capitalization formulas. The ruling protects professionals from having to 'buy out' an intangible asset whose value cannot be realized through a sale, thereby shaping future litigation strategy in divorces involving professional practices.
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