In Re Marriage of McTiernan and Dubrow
5 Cal. Daily Op. Serv. 9449, 133 Cal. App. 4th 1090, 35 Cal. Rptr. 3d 287 (2005)
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Rule of Law:
Professional goodwill that is divisible as community property must attach to an existing business enterprise with assets that is capable of being sold or transferred; it cannot be based solely on an individual's personal skill, reputation, and earning capacity, as these attributes are not themselves transferable property.
Facts:
- John McTiernan and Donna Dubrow were married in November 1988.
- During the marriage, McTiernan became a highly successful motion picture director, responsible for blockbuster films and commanding compensation in the high six- to seven-figures per film.
- McTiernan's success was dependent upon his personal skill, experience, knowledge, and reputation within the film industry.
- During the marriage, McTiernan earned approximately $15 million, while Dubrow earned about $1 million in her career in motion picture production.
- The parties separated in July 1997.
- After the separation began, McTiernan sold community property stocks without Dubrow's consent or a court order, citing a cash shortage.
Procedural Posture:
- John McTiernan (husband) filed a petition for dissolution of marriage against Donna Dubrow (wife) in the state trial court.
- Following a 21-day trial, the trial court issued a judgment finding that McTiernan possessed $1.5 million in professional goodwill, which was entirely community property.
- The trial court also ordered McTiernan to reimburse the community for lost profits on stocks he sold in violation of a court order and limited Dubrow's spousal support to two years.
- Both McTiernan and Dubrow appealed the trial court's judgment to the California Court of Appeal.
- McTiernan is the appellant on the issue of goodwill, and Dubrow is the appellant on the issue of spousal support.
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Issue:
Does the enhanced earning capacity and reputation of a motion picture director, independent of a transferable business entity, constitute professional goodwill that is divisible as community property?
Opinions:
Majority - Flier, J.
No. The enhanced earning capacity and reputation of a motion picture director do not constitute divisible goodwill because goodwill must attach to a transferable business, not merely to a person. Under Business and Professions Code sections 14100 and 14102, goodwill is defined as the 'expectation of continued public patronage' of 'a business,' and it is considered 'property' that is 'transferable.' The court reasoned that 'a business' refers to a professional or commercial enterprise with assets, not a natural person. McTiernan's 'elite professional standing,' based on his personal talent and reputation, cannot be sold or transferred to another person. Because this essential characteristic of property—transferability—is absent, his personal earning capacity cannot be characterized as community property goodwill.
Concurring - Boland, J.
No. John McTiernan's work as a movie director is not a business or professional practice to which goodwill can attach because nothing exists to sell or transfer. Unlike a doctor or lawyer who can sell their practice, McTiernan cannot sell his personal talent to direct a movie. His 'business' is inseparable from him as an individual artist. Since property must be transferable, and McTiernan’s talent and profession are not, there is no underlying business asset to which goodwill can attach. Therefore, as a matter of law, no divisible goodwill exists.
Concurring-in-part-and-dissenting-in-part - Cooper, P. J.
Yes. The trial court's finding of divisible goodwill should be upheld because husband's professional practice as a director constitutes a business with an 'expectation of continued public patronage.' The majority imposes novel and restrictive requirements, such as the need for a formal, transferable business entity, which disregard established family law precedent. Prior cases have recognized goodwill in the practices of individual professionals without requiring marketability. In a dissolution context, goodwill is not a commodity for sale but a valuation of the professional practice as a going concern, to which the other spouse contributed, and its value does not depend on whether it can actually be sold.
Analysis:
This decision significantly clarifies the definition of professional goodwill in California family law, especially for individuals in creative, artistic, or other talent-based professions. By tethering goodwill to a transferable 'business,' the court draws a line between professionals like doctors or lawyers with saleable 'practices' and individuals like artists, athletes, or directors whose value is inherently personal and non-transferable. This precedent limits the scope of what can be divided as a community asset in divorces involving highly compensated individuals in such fields. It protects their future earning capacity from being valued and divided as a current asset, impacting how high-asset divorces in entertainment and sports are litigated.
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