Sommers v. Sommers
2003 ND 77, 660 N.W.2d 586, 2003 N.D. LEXIS 86 (2003)
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Rule of Law:
In a divorce proceeding, a professional practice that is not being liquidated must be valued at its fair market value as a going concern, which includes its goodwill. Valuing such a practice at its liquidation value is improper unless there is evidence that liquidation is contemplated or required by the circumstances.
Facts:
- Dennis Sommers and Nancy Sommers married in 1975 while Dennis was in orthodontic school.
- In 1977, Dennis established an orthodontic practice in Minot, North Dakota, which he has operated continuously since.
- Nancy worked in Dennis's office until the day before the birth of their first child in 1980.
- After the birth of their children in 1980 and 1984, Nancy did not work outside the home.
- The parties separated in 1998.
- During the divorce proceedings, Dennis testified that he enjoyed his practice and intended to continue working for as long as he was able.
Procedural Posture:
- Dennis Sommers filed a divorce action against Nancy Sommers in a North Dakota trial court.
- The parties agreed their marital property should be divided equally.
- The trial court accepted Dennis's expert's $168,000 liquidation valuation of his orthodontic practice and rejected Nancy's expert's $800,000 going-concern valuation.
- The trial court entered a judgment dividing the marital property and awarding Nancy rehabilitative spousal support.
- Nancy Sommers (Appellant) appealed the judgment to the Supreme Court of North Dakota.
- Dennis Sommers (Appellee) filed a motion to dismiss the appeal, which the Supreme Court of North Dakota considered along with the merits.
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Issue:
Does a trial court commit a clear error in valuing a professional practice at its liquidation value for the purpose of marital property distribution when there is no evidence that the practice is going to be liquidated?
Opinions:
Majority - Kapsner, Justice
Yes. A trial court’s valuation of a professional practice at its liquidation value is clearly erroneous when no evidence indicates that liquidation is contemplated or required by the circumstances. The court reasoned that liquidation value is the least favored method for valuing marital property and should only be used in distressed situations. The proper method is fair market value, which is the price a willing buyer would pay a willing seller. Here, Dennis Sommers was not planning to liquidate his practice; he intended to continue working. Therefore, deducting hypothetical liquidation costs and taxes, and ignoring the value of goodwill as a going concern, was an error. The valuation must be based on the practice's fair market value as an ongoing enterprise.
Analysis:
This decision reinforces the legal principle that marital assets, particularly ongoing businesses and professional practices, must be valued realistically based on their actual circumstances. By rejecting liquidation value in the absence of an actual planned liquidation, the court prevents a business-owning spouse from artificially deflating the value of a key marital asset. This precedent ensures that the non-owning spouse receives an equitable share of the business's true worth, including its intangible value like goodwill, promoting fairer outcomes in high-asset divorces involving professional practices.
