Traczyk v. Traczyk
1995 OK 22, 66 O.B.A.J. 1102, 891 p.2d 1277 (1995)
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Rule of Law:
The goodwill of a professional sole proprietorship is a divisible marital asset if it is a marketable business asset with a determinable fair market value, distinct from the personal reputation of the individual practitioner.
Facts:
- Richard J. Traczyk (Husband) is a doctor of podiatric medicine who operated his practice through a wholly-owned professional corporation, the Bethany Foot Clinic.
- Kathleen M. Traczyk (Wife) is a registered nurse.
- Both parties worked throughout their marriage.
- During their divorce proceedings, the parties could not agree on the division of the Bethany Foot Clinic's value.
- Wife presented expert testimony valuing the clinic at $152,605.44, with $103,744.00 of that value attributed to the business's goodwill.
- The expert's goodwill valuation was based on evidence that an average of 32% of a podiatry clinic's patients remain after it is sold to a new doctor.
- Husband argued the clinic had no goodwill value, testifying that patients came specifically for him and would not stay if he sold the practice.
Procedural Posture:
- Richard J. Traczyk and Kathleen M. Traczyk were parties to a divorce action in the district court (trial court).
- The trial court granted the divorce and, in dividing the marital property, included the goodwill value of the husband's podiatry clinic in the marital estate.
- Richard J. Traczyk, as appellant, appealed the trial court's judgment.
- The Court of Appeals affirmed the judgment of the trial court.
- The Supreme Court of Oklahoma granted certiorari to review the case.
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Issue:
Does the goodwill of a medical sole proprietorship constitute marital property subject to equitable division in a divorce proceeding?
Opinions:
Majority - Simms, J.
Yes. The goodwill of a medical sole proprietorship constitutes marital property subject to division because it is a transferable asset distinct from the practitioner's personal reputation. The court reasoned that unlike a law practice, where goodwill is often inextricably tied to an individual's reputation, a medical practice is more easily transferred. Competent expert evidence showed that a percentage of patients, representing the "expectation of continued public patronage," would remain with the clinic after a sale. This transferable goodwill has a discernible fair market value. The court distinguished this case from 'Mocnik v. Mocnik,' where a partner in a medical corporation could not realize the goodwill's value due to a restrictive stockholder agreement requiring him to sell his stock back at book value. Here, Husband, as a sole proprietor, is free to sell the clinic and its goodwill at fair market value. The court also rejected the argument that including goodwill in the property division and awarding support alimony constituted "double-dipping," clarifying that goodwill is a divisible marital asset, whereas support alimony is based on need and ability to pay.
Analysis:
This decision clarifies the treatment of professional goodwill as a marital asset in Oklahoma, distinguishing between non-transferable personal goodwill and marketable enterprise goodwill. It establishes that for sole proprietorships or practices without restrictive buy-sell agreements, goodwill can be valued and divided if evidence shows it is transferable and has a fair market value separate from the individual's future earnings. This precedent provides a framework for lower courts to differentiate between professional practices where goodwill is a personal attribute (like law practices, per 'Travis') versus those where it is a quantifiable business asset. The ruling significantly impacts the valuation of professional practices in divorce cases, potentially increasing the size of the marital estate for professionals who own their own businesses.
