Justia.com Opinion Summary: Tracy McReath filed a petition for divorce from Timothy McReath in circuit court. Upon entering the order of divorce, the circuit court divided the marital property and awarded maintenance to Tracy, ordering that Timothy pay Tracy $796,720 to equalize the property division as well as $16,000 per month for twenty years in maintenance. Timothy appealed, arguing that (1) the circuit court erred as a matter of law when it treated Timothy's personal goodwill in his orthodontic practice as divisible property, and (2) the circuit court improperly double counted his personal goodwill in the orthodontic practice when it based Tracy's maintenance award on Timothy's expected future earnings from the orthodontic practice. The court of appeals affirmed, concluding that the personal goodwill was salable and that the circuit court did nor err in its approach in determining the property division and maintenance award. The Supreme Court affirmed, holding (1) the entire value of the salable professional goodwill was properly counted as divisible property in the marital estate, and (2) the circuit court did not double count the professional goodwill from the orthodontic practice in the maintenance award.
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2011 WI 66
SUPREME COURT
CASE NO.:
COMPLETE TITLE:
OF
WISCONSIN
2009AP639
In re the marriage of:
Tracy J. McReath,
Petitioner-Respondent,
v.
Timothy J. McReath,
Respondent-Appellant-Petitioner.
REVIEW OF A DECISION OF THE COURT OF APPEALS
2010 WI App 101
Reported at: 329 Wis. 2d 155, 789 N.W. 2d 89
(Ct. App. 2010 – Published)
OPINION FILED:
SUBMITTED ON BRIEFS:
ORAL ARGUMENT:
SOURCE OF APPEAL:
COURT:
COUNTY:
JUDGE:
July 12, 2011
April 13, 2011
Circuit
Sauk
James Evenson
JUSTICES:
CONCURRED:
DISSENTED:
NOT PARTICIPATING:
ATTORNEYS:
For the respondent-appellant-petitioner there were briefs
by
Andrew
W.
Erlandson
and
Hurley,
Burish
&
Stanton,
S.C.,
Madison, and oral argument by Andrew W. Erlandson.
For the petitioner-respondent there was a brief by Richard
J.
Auerbach
and
Auerbach
&
Porter,
argument by Richard J. Auerbach.
S.C.,
Madison,
and
oral
2011 WI 66
NOTICE
This opinion is subject to further
editing and modification.
The final
version will appear in the bound
volume of the official reports.
No.
2009AP639
(L.C. No.
2007FA208)
STATE OF WISCONSIN
:
IN SUPREME COURT
In re the marriage of:
Tracy J. McReath,
FILED
Petitioner-Respondent,
JUL 12, 2011
v.
A. John Voelker
Acting Clerk of Supreme
Court
Timothy J. McReath,
Respondent-Appellant-Petitioner.
REVIEW of a decision of the Court of Appeals.
¶1
PATIENCE DRAKE ROGGENSACK, J.
Affirmed.
We review a published
opinion of the court of appeals1 affirming the circuit court's
order2
that
Timothy
McReath
(Tim)
pay
Tracy
McReath
(Tracy)
$796,720 to equalize the property division upon the couple's
divorce,
as
well
maintenance.
The
as
$16,000
questions
per
month
presented
are:
for
20
(1)
years
in
whether
the
1
McReath v. McReath, 2010 WI App 101, 329 Wis. 2d 155, 789
N.W.2d 89.
2
The Honorable James Evenson of Sauk County presided.
No.
entire
value
interest
in
of
the
salable
Orthodontic
professional
Specialists,
S.C.
goodwill3
can
be
2009AP639
of
Tim's
counted
as
divisible property in a marital estate, and (2) if the answer to
the first question is yes, did the circuit court double count
the
value
of
the
professional
goodwill
in
Orthodontic
Specialists when it based Tracy's maintenance award on Tim's
expected future earnings from Orthodontic Specialists.
¶2
We
conclude
the
entire
value
of
the
salable
professional goodwill was properly counted as divisible property
in the marital estate.
Moreover, we conclude that the circuit
court
count
did
not
double
the
professional
Orthodontic Specialists in the maintenance award.
goodwill
from
Accordingly,
we affirm the decision of the court of appeals.
I.
BACKGROUND
A.
¶3
Facts
This case requires us to review the circuit court's
order dividing marital property and awarding maintenance in a
divorce proceeding.4
Tracy and Tim were married on August 27,
3
Professional goodwill is the goodwill that is attendant to
a professional business.
See infra ¶28.
As discussed below,
for the purpose of property division, some courts and scholars
divide professional goodwill into two components:
"personal
goodwill" and "enterprise goodwill."
See infra ¶¶38-39.
For
reasons set forth below, see infra ¶¶39-41, we do not divide
professional goodwill. Therefore, when discussing "professional
goodwill" throughout this opinion, we are referring to both
components of professional goodwill.
4
The majority of the facts set out below are taken from the
thorough factual findings set forth by the circuit court. When
we derive facts from elsewhere in the record, we so note.
2
No.
1988.
2009AP639
Three children, all of whom were minors at the time the
divorce proceedings were initiated, were born of their marriage.5
¶4
In 1991, Tim received his dental degree, and in 1993,
he received a master's degree in orthodontia.
Accordingly, most
of Tim's dental education was pursued during the marriage.
Tim
took out student loans to fund his education, all of which were
repaid with marital funds.
¶5
Upon receiving his masters in orthodontia, Tim worked
as an associate at Orthodontic Specialists for two years.
Tim
then purchased the Baraboo and Portage locations of Orthodontic
Specialists from Dr. Grady.
¶6
Tim paid approximately $930,000 for the two locations
of Orthodontic Specialists.
A portion of this purchase price
was attributed to a noncompete agreement that Dr. Grady signed
and
to
transitional
services
that
Dr.
Grady
provided
Tim.
Specifically, Tim testified that $100,000 was for the physical
assets, corporate name, and corporate goodwill.
$830,000
was
for,
as
Tim
described,
"Dr.
The remaining
Grady's
name,
the
noncompete clause, and the employment agreement that Dr. Grady
would stay on to introduce me to his existing patients, [and] to
counsel me through the process of learning how to do business."
¶7
With regard to the noncompete agreement, Tim testified
that he would not have purchased Orthodontic Specialists for as
high
of
a
price
as
he
did
without
5
a
noncompete
agreement
The McReaths' eldest child has since reached the age of
majority.
3
No.
2009AP639
because, "[Dr. Grady] could have just opened up a business just
down the street and I'm assuming that he would have taken not
only the majority of patients with him but the majority of the
future patients in the area."
Tim also testified that he was
not aware of any transaction in the field of orthodontics, for
any
substantial
agreement.
value,
that
took
place
without
a
noncompete
According to Tim, "the name of the practitioner is
always weighted very heavily as opposed to the goodwill or the
value of the name of the practice or corporation."
¶8
Tim
Specialists
historically
has
since
worked
he
as
the
purchased
averaged
a
it
60-hour
sole
owner
from
Dr.
work
of
Grady.
week.
Orthodontic
Tim
has
This
is
significantly more than the average orthodontist who works only
35 hours per week.
Recently, Tim has reduced the number of
hours he works to approximately 45 hours per week.
Tim has no
plans to sell or dispose of his practice.
¶9
Tim has been very successful in operating Orthodontic
Specialists.
His annual gross business revenues in the five
years leading up to the divorce ranged from $1.6 million to in
excess of $1.8 million.
In the same five years, Tim received an
average yearly net cash flow from Orthodontic Specialists of
4
No.
$697,522.6
2009AP639
Notably, Orthodontic Specialists maintains the only
orthodontic offices in Baraboo and Portage.
¶10
The success of Orthodontic Specialists has resulted in
a relatively high standard of living for the McReath family.
They have significant assets and little, if any, personal debt.
¶11
Unlike Tim, Tracy does not have a professional degree.
She is a high school graduate with some college credits, but no
college degree.
Tracy worked outside the home while Tim was
attending dental school.
Throughout much of their marriage,
however, Tracy worked as a homemaker and the primary caretaker
for the couple's children.
Specifically, she was completely out
of the workforce from 1993 to 2000.
performed
some
Specialists.
per year.
financial
and
clerical
From 2000 to 2008, she
duties
for
Orthodontic
In this position, she was paid $15,000 to $16,000
The circuit court found Tracy has a current earning
capacity of $14.50 per hour, or $30,160 annually.
B.
¶12
Procedural History
On May 16, 2007, Tracy filed a petition for divorce in
Sauk County Circuit Court.
Upon entering the order of divorce,
6
The circuit court found the income calculations conducted
by Tracy's expert to be correct, and rejected those conducted by
Tim's expert. The circuit court's finding that Tim's expert had
made an incorrect income valuation was based on the fact that
Tim's expert limited his calculations to one year, 2007, which
happened to be the worst financial year for Tim in the preceding
five years.
On appeal, Tim does not challenge the income
calculations adopted by the circuit court.
5
No.
the
circuit
court,
among
other
things,
divided
2009AP639
the
marital
property and awarded maintenance to Tracy.7
¶13
Regarding
the
marital
property
division,
with
the
exception of the value of Orthodontic Specialists, the parties
stipulated to the value of their marital assets.
They also
stipulated to a division of assets with a balancing payment.
Hearings were held on the appropriate fair market valuation of
Orthodontic
Specialists,
$1,058,000.
This was the value given by Tracy's expert, Craig
Billings (Billings).
and
resulted
in
a
valuation
of
The court rejected the $415,000 valuation
of Tim's expert, Dennis Ksicinski (Ksicinski).8
¶14
Having valued Orthodontic Specialists at $1,058,000,
the court turned to dividing the assets.
The court found that
7
The parties entered into a stipulated agreement regarding
the custody and physical placement of their three children.
8
In accepting Billings' valuation, the court highlighted
that Billings had "provided a comprehensive and thorough
evaluation" of the business and "[h]is conclusions were
supported by direct work with the practice including a site
visit or visits, conversations with [Tim, a] review of the
financial records" and "external information sources unique to
the profession such as surveys and professional journal data."
The court found Ksicinski's valuation problematic because,
among
other
things,
Ksicinski
relied
significantly
on
information provided by Tim and did little independent or
critical analysis; Ksicinski used only financial data from 2007
(one of Orthodontic Specialists' worst financial years in terms
of net income) in making his valuations; Ksicinski did not look
to
outside
sources
and
industry
norms
to
support
his
conclusions; and Ksicinski's valuation was not supported by the
record given the fact that Tim had bought the practice in the
1990s for over $900,000 and the business grossed in excess of
$1.6 million per year.
6
No.
2009AP639
there was no reason to deviate from the presumption of equal
property division in Wis. Stat. § 767.61(3) (2009-10).9
combined
the
$1,058,000
valuation
of
Orthodontic
It then
Specialists
with the other, stipulated to, assets in the marital estate.
Because, among other assets, Tim was the stipulated owner of
Orthodontic Specialists, Tim's total assets exceeded Tracy's by
$1,593,440.
As such, to equalize the property division, the
court awarded Tracy $796,720, to be paid at the rate of no less
than $80,000 per year plus accrued interest.
¶15
Next, to set maintenance, the court used Tim's average
annual earnings from Orthodontic Specialists over the preceding
five
years,
i.e.,
$697,522.
However,
because
the
$697,522
salary was based on Tim working 50-70 hours per week, the court
adjusted
the
figure
to
reflect
a
40-hour
work
week.
Consequently, the court set Tim's expected annual income from
Orthodontic Specialists at $465,000 (rounded).
Next, the court
took its finding that Tracy had a current earning capacity of
$14.50 per hour, or $30,160 annually.
these
income
available
to
calculations
the
parties,
to
the
The court then added
other
specifically
sources
rental
and
of
income
investment
income, and found that Tim's total annual income was $535,806
(or $44,650/month) and Tracy's total annual income was $75,944
(or $6,328/month).
9
All subsequent references to the Wisconsin Statutes are to
the 2009-10 version unless otherwise indicated.
7
No.
¶16
2009AP639
With these figures in hand, the court considered the
statutory factors set forth in Wis. Stat. § 767.56 in deciding
whether to award maintenance.10
In considering these factors,
the court found that it was unlikely that Tracy would ever have
Tim's
earning
standard
of
marriage.
capacity
living
or
an
income
comparable
to
that
that
would
allow
enjoyed
for
during
a
the
The court also underscored that Tracy had contributed
to the dental education and increased earning capacity of Tim.
Based on these findings, the court awarded Tracy maintenance in
the amount of $16,000 per month for a period of 20 years.
¶17
Tim
appealed
and
the
court
of
appeals
affirmed.
McReath v. McReath, 2010 WI App 101, 329 Wis. 2d 155, 789 N.W.2d
89.
Tim argued that the circuit court erred as a matter of law
when
it
Specialists
treated
as
his
divisible
personal11
property.
goodwill
Id.,
in
¶1.
Orthodontic
The
court
of
appeals affirmed on the basis that the personal goodwill was
salable, as evidenced by the fact that Tim himself had paid for
the
personal
goodwill
of
Dr.
Grady
when
he
bought
the
orthodontic practice and the reality that any hypothetical buyer
would demand a noncompete agreement.
Id., ¶¶17-18.
Because
10
See infra note 17 and the accompanying text for a list of
the Wis. Stat. § 767.56 factors and a discussion of maintenance
awards in Wisconsin.
11
The court of appeals uses the term "professional
goodwill" to describe what we later discuss as "personal
goodwill," and the term "corporate goodwill" to describe what we
later discuss as "enterprise goodwill." See infra section II.B.
To avoid confusion, we use the terms we employ herein to
describe the court of appeals decision.
8
No.
there
is
no
rule
excluding
salable
goodwill
from
2009AP639
divisible
property, the court of appeals concluded that the circuit court
did not err when it included personal goodwill in the marital
estate.
Id., ¶19.
¶18
Additionally,
Tim
argued
that
the
circuit
court
improperly double counted his personal goodwill in Orthodontic
Specialists.
The goodwill, he averred, was counted first when
it was considered a divisible asset.
It was then counted a
second time when maintenance was awarded based on his earning
capacity
that
was
calculated,
Id., ¶32.
goodwill.
in
part,
circuit
his
personal
The court considered three alternatives to
address Tim's double counting concerns.
Tim,
using
courts
could
exclude
First, as suggested by
all
personal
goodwill,
regardless of whether it is salable, from property division.
Id., ¶¶35-46.
The court rejected this alternative.
Second,
also
salable
personal
compensate
by
maintenance.
alternative.
¶19
suggested
by
goodwill
making
Id.,
a
Tim,
circuit
in
divisible
downward
¶¶47-49.
The
courts
Id., ¶46.
could
property,
include
and
adjustment
when
court
rejected
also
then
awarding
this
Id., ¶49.
Third, the court considered Tracy's suggested approach
that it characterized as:
[enterprise]
and
"include all salable goodwill, both
[personal],
as
a
divisible
asset
and
then,
essentially, ignore the fact that Tim's earnings are intertwined
with part of the divisible assets."
Id., ¶50.
Having rejected
the two approaches advocated by Tim, the court adopted Tracy's
approach, opining that there was no "existing rule precluding
9
No.
this approach."
Id.
2009AP639
Accordingly, the court of appeals affirmed
the property division and maintenance awarded.
¶20
We granted review and now affirm the court of appeals.
II.
A.
¶21
of
DISCUSSION
Standard of Review
The division of marital property and the calculation
maintenance
are
matters
typically
discretion of the circuit court.
left
to
the
sound
Rohde-Giovanni v. Baumgart,
2004 WI 27, ¶17, 269 Wis. 2d 598, 676 N.W.2d 452; Cook v. Cook,
208 Wis. 2d 166, 171, 560 N.W.2d 246 (1997).
a circuit
court's discretionary
We do not disturb
determinations
about
property
division and the calculation of maintenance unless the court
erroneously
exercised
Wis. 2d 598, ¶17.
its
discretion.
Rohde-Giovanni,
269
A circuit court erroneously exercises its
discretion if it makes an error of law.
presented
here
concern
whether
incorrect
legal
standards
in
the
Id., ¶18.
circuit
dividing
marital
The issues
court
applied
property
and
calculating maintenance.
¶22
When an issue of law arises while we are reviewing a
circuit court's exercise of discretion, we review that issue
independently, but benefiting from the analyses of the court of
appeals and circuit court.
Id., ¶19; Marder v. Bd. of Regents
of the Univ. of Wis. Sys., 2005 WI 159, ¶19, 286 Wis. 2d 252,
706 N.W.2d 110.
Moreover, in deciding legal issues, we uphold
the circuit court's findings of fact unless they are clearly
erroneous.
Phelps v. Physicians Ins. Co. of Wis., Inc., 2009 WI
74, ¶34, 319 Wis. 2d 1, 768 N.W.2d 615.
10
"[T]he valuation of
No.
marital assets is a finding of fact."
2009AP639
Liddle v. Liddle, 140
Wis. 2d 132, 136, 410 N.W.2d 196 (Ct. App. 1987).
B.
¶23
Chapter
Marital Estate and Goodwill
767
of
the
Wisconsin
Statutes,
"Actions
Affecting the Family," sets forth how a presiding court should
divide
the
marital
estate
upon
divorce.
Wisconsin
Stat.
§ 767.61(1) requires the court to divide the property of the
parties
upon
divorce.
Section
767.61(2)
identifies
property
that is subject to division by describing the limited types of
property that generally are not subject to division on divorce.12
The
property
subject
to
division
is
considered
the
marital
estate for purposes of property division upon divorce.
Steinke
v. Steinke, 126 Wis. 2d 372, 380, 376 N.W.2d 839 (1985).
12
Excluded property includes:
property shown to have been acquired by either party
prior to or during the course of the marriage . . .:
1.
party.
As a gift from a person other than the other
2.
By
reason
of
the
death
of
another,
including,
but
not
limited
to,
life
insurance
proceeds; payments made under a deferred employment
benefit plan, as defined in s. 766.01(4)(a), or an
individual retirement account; and property acquired
by right of survivorship, by a trust distribution, by
bequest or inheritance or by a payable on death or a
transfer on death arrangement under ch. 705
3.
With funds acquired in a manner provided in
subd. 1. or 2.
Wis. Stat. § 767.61(2)(a).
If excluding this property "will
create a hardship on the other party or on the children of the
marriage," the court may nonetheless divide the property in a
"fair and equitable manner." § 767.61(2)(b).
11
No.
¶24
2009AP639
When engaged in dividing the marital estate, a circuit
court is to proceed under the presumption of equal division.
Wis.
Stat.
§ 767.61(3).
"effectuates
the
contribution
to
policy
Dividing
that
the marriage
each
and
the
spouse
that
each
estate
makes
a
spouse
compensated for his or her respective contributions."
126 Wis. 2d at 380-81.
equally
valuable
should
be
Steinke,
We have explained the rationale behind
equal division when one spouse leaves the work force to care for
the couple's domestic needs:
Part of the rationale in creating the presumption of
equal property division is that the homemaking partner
has contributed services which have enabled the
financially supporting partner to achieve his or her
station in life, and in so doing the homemaking
partner has lost ground in the job market.
Id. (internal quotation marks and citation omitted).
Despite
the presumption of equal division, the court has the discretion
to alter the distribution after considering numerous factors.13
13
Those factors, enumerated in Wis. Stat. § 767.61(3), are:
(a)
(b)
party.
The length of the marriage.
The property brought to the marriage by each
(c) Whether one of the parties has substantial
assets not subject to division by the court.
(d) The contribution of each party to the
marriage, giving appropriate economic value to each
party's contribution in homemaking and child care
services.
(e) The age and physical and emotional health of
the parties.
12
No.
¶25
marital
Property
estate
valued
should
be
for
the
valued
at
purpose
its
of
fair
2009AP639
dividing
market
value.
(f) The contribution
by
one party
to
the
education, training or increased earning power of the
other.
(g) The
earning
capacity
of
each
party,
including educational background, training, employment
skills, work experience, length of absence from the
job market, custodial responsibilities for children
and the time and expense necessary to acquire
sufficient education or training to enable the party
to become self-supporting at a standard of living
reasonably comparable to that enjoyed during the
marriage.
(h) The desirability of awarding the family home
or the right to live therein for a reasonable period
to the party having physical placement for the greater
period of time.
(i) The amount and duration of an order under s.
767.56 granting maintenance payments to either party,
any order for periodic family support payments under
s. 767.531 and whether the property division is in
lieu of such payments.
(j) Other economic circumstances of each party,
including pension benefits, vested or unvested, and
future interests.
(k)
The tax consequences to each party.
(L) Any written agreement made by the parties
before
or
during
the
marriage
concerning
any
arrangement for property distribution; such agreements
shall be binding upon the court except that no such
agreement shall be binding where the terms of the
agreement are inequitable as to either party.
The
court shall presume any such agreement to be equitable
as to both parties.
(m) Such other factors as the court may in each
individual case determine to be relevant.
13
the
No.
Liddle, 140 Wis. 2d at 138.
that
property
will
bring
2009AP639
"Fair market value is the price
when
offered
for
sale
by
one
who
desires but is not obligated to sell and bought by one who is
willing but not obligated to buy."
¶26
Id.
In this case, the issue is whether the entire value of
the salable professional goodwill in Orthodontic Specialists is
included in the marital estate subject to division under Wis.
Stat.
§ 767.61.
Subsection
767.61(2)
does
not
explicitly
exclude professional goodwill from the divisible marital estate.
Consequently, we turn to
the
applicable
case
law
and
policy
considerations to decide whether the entire value of the salable
professional goodwill is subject to property division.
¶27
point.
Defining professional goodwill is a necessary starting
In
1967,
we
recognized
divisible marital asset.
155
N.W.2d
130
a
business's
goodwill
as
a
Spheeris v. Spheeris, 37 Wis. 2d 497,
(1967).
In
doing
so,
we
underscored
the
difficulty in defining the concept, but set forth the following
definition:
In its broadest sense the intangible asset called
good will may be said to be reputation; however, a
better description would probably be that element of
value which inheres in the fixed and favorable
consideration of customers arising from an established
and well-conducted business.
Id.
at
504
Similarly,
(footnote
the
court
and
of
internal
appeals
quotation
has
advanced
marks
omitted).
the
following
definition:
The advantage or benefit which is acquired by an
establishment beyond the mere value of the capital
14
No.
2009AP639
stock,
funds, or property
employed
therein,
in
consequence of the general public patronage and
encouragement which it receives from constant or
habitual customers on account of its local position,
or common celebrity, or reputation for skill or
affluence, or punctuality, or from other accidental
circumstances or necessities, or even from ancient
partiality or prejudices.
Holbrook v. Holbrook, 103 Wis. 2d 327, 345, 309 N.W.2d 343 (Ct.
App.
1981)
Stated
(citing
another
38
way,
Am.
Jur.
goodwill
2d.,
"[a]
is
Goodwill
§ 1
business's
(1968)).
reputation,
patronage, and other intangible assets that are considered when
appraising the business, [especially] for purchase; the ability
to earn income in excess of the income that would be expected
from
the
Black's
business
Law
viewed
Dictionary
as
763
a
mere
collection
ed.
2009).
(9th
of
assets."
Simply
stated,
goodwill is "an asset of recognized value beyond the tangible
assets of [a business]."
Taylor v. Taylor, 386 N.W.2d 851, 857
(Neb. 1986).
¶28
inhere
Originally,
in
businesses
it
was
professional
depend
professional.
on
the
posited
that
businesses
skill
and
goodwill
because
not
professional
reputation
Holbrook, 103 Wis. 2d at 346.
did
of
the
However, courts
and scholars now recognize goodwill in professional businesses.
See, e.g., id. at 347-49; Peerenboom v. Peerenboom, 147 Wis. 2d
547, 550-52, 433 N.W.2d 282 (Ct. App. 1988); Golden v. Golden,
75 Cal. Rptr. 735, 737-38 (Ct. App. 1969); Christopher A. Tiso,
Present
Positions
on
Professional
Goodwill:
More
Focus
or
Simply More Hocus Pocus?, 20 J. Am. Acad. Matrimonial L. 51, 52
(2006) [hereinafter "Tiso, Present Positions"].
15
When goodwill
No.
inheres
in
a
professional
business,
classified as "professional goodwill."
it
most
is
2009AP639
properly
Tiso, Present Positions,
at 52.
¶29
As aforementioned, we recognized goodwill as part of
the divisible marital estate as early as 1967.
order to
calculate
Mr. Spheeris's
net
worth
In Spheeris, in
for
the
divorce
judgment, the circuit court included the value of the goodwill
attributable to the retail discount store owned by Mr. Spheeris.
Spheeris, 37 Wis. 2d at 503.
Mr. Spheeris did not challenge the
inclusion of goodwill as a divisible marital asset; rather, he
challenged the valuation of the goodwill by use of predictive
formulas, absent a sale of the business.
words,
Mr.
[goodwill]
Spheeris
is
argued
through
a
that
"the
purchase
voluntary arm's-length transaction."
¶30
sale
in
Id. at 506.
only
price
way
to
agreed
In other
establish
upon
in
a
Id.
We disagreed, holding that there need not be an actual
order
to
business's goodwill.
determine
the
existence
and
value
of
a
We stated:
It is true that the best indicator of [goodwill] would
be such a purchase price.
However, there is no
authority in Wisconsin that would either proscribe or
preclude the use of mathematical computations to
determine the value of [goodwill].
Actually, the
employment
of
such
mathematical
formulas
in
determining [goodwill] appears to be widespread.
Id.
We
opined
further
that
when
determining
the
value
of
goodwill, there are no prescribed formulas the circuit court
must apply.
Id.
16
No.
¶31
While
subsequent
Spheeris
Wisconsin
cases
professional practices.
in a large law firm.
involved
have
a
commercial
recognized
2009AP639
business,
goodwill
in
In Holbrook, Mr. Holbrook was a partner
Holbrook, 103 Wis. 2d at 330.
The court
of appeals considered whether the circuit court had erroneously
determined
that
the
goodwill
in
Mr.
Holbrook's
partnership
interest in the law firm was a divisible marital asset.
344.
Id. at
In concluding that the circuit court did err, the court
began its discussion with a blanket statement that, standing
alone, would imply the court was prohibiting any inclusion of
professional
court
goodwill
stated,
the
divisible
are
"[w]e
in
not
persuaded
marital
that
estate.
the
The
concept
of
professional goodwill as a divisible marital asset should be
adopted in Wisconsin."
¶32
Id. at 350.
However, the court's subsequent discussion focused on
its assumption that professional goodwill cannot be sold, and
"accrues to the benefit of the owners only through increased
salary."
Id.
goodwill
in
professional
For instance, the court compared the professional
Mr.
degree.
Holbrook's
It
partnership
opined
that
interest
"[l]ike
an
to
a
educational
degree, a partner's theoretical share of a law firm's goodwill
cannot be exchanged on an open market:
it cannot be assigned,
sold, transferred, conveyed or pledged. . . .
In both cases,
the 'asset' involved is not salable and has computable value to
the individual only to the extent that it promises increased
future
earnings."
omitted).
Moreover,
Id.
the
at
351
court
17
(emphasis
underscored
added)
that,
(footnote
apart
from
No.
2009AP639
receiving the value of his capital account, Mr. Holbrook was
"[e]thically and contractually
. . .
prevented
disposing of his interest" in the firm.
¶33
Accordingly,
Wisconsin
from
otherwise
Id. at 352.
courts
considering
the
valuation of professional goodwill subsequent to Holbrook have
limited Holbrook's assertion that professional goodwill is not
part of the divisible marital estate to situations where the
professional
goodwill
is
nonsalable.
For
example,
in
Peerenboom, the court of appeals concluded that the goodwill in
a
divorcing
marital
spouse's
asset.
dental
Peerenboom,
practice
147
could
Wis. 2d
at
be
a
552.
divisible
The
court
distinguished Holbrook:
Holbrook . . . involved the division of an individual
lawyer's interest in a large law firm.
The court
explained
that
due
to
ethical
and
contractual
considerations,
his
interest in
the law firm's
goodwill could not be exchanged or sold on the open
market.
The court concluded therefore that it would
be inequitable to compel "a professional practitioner
to pay a spouse a share of intangible assets at a
judicially determined value that could not be realized
by a sale or another method of liquidating value."
. . .
In contrast, in this case the record shows no
ethical or contractual barrier to [Dr. Peerenboom's]
disposing of his interest in his dental practice.
Accordingly, to the extent that the evidence shows
that the goodwill exists, is marketable, and that its
value is something over and above the value of the
practice's assets and the professional's skills and
services, it may be included as an asset in the
marital estate and be subject to division.
Id. at 551-52 (quoting Holbrook, 103 Wis. 2d at 351).
18
No.
¶34
2009AP639
Similarly, in Sommerfield v. Sommerfield, 154 Wis. 2d
840, 454 N.W.2d 55 (Ct. App. 1990), the court of appeals held
that the circuit court erred when, for the purpose of setting
the
value
of
Mr.
Sommerfield's
disregarded
the
expert
goodwill.
Id.
at
witness's
852-54.
accounting
valuation
Starting
of
with
practice,
the
the
it
practice's
premise
that
goodwill can be a marketable asset, the court underscored the
expert's opinion that a noncompete agreement covering two years
would be the normal condition under which a practice like Mr.
Sommerfield's would be sold.
Id. at 853.
was
a
no
evidence
that
such
noncompete
Concluding that there
agreement
would
be
unenforceable, the court held that the circuit court erroneously
found that there was not separate, marketable goodwill in Mr.
Sommerfield's practice that could be included in the divisible
marital estate.
¶35
In
Id. at 854.
accordance
with
previous
Wisconsin
case
law,
we
conclude today that when valuing a business interest that is
part of the marital estate for purposes of divorce, a circuit
court
shall
include
the
value
of
the
salable
goodwill attendant to the business interest.14
professional
In addition to
the above discussed case law, this conclusion is supported by
14
In the case before us, there was no contention that the
business interest in Orthodontic Specialists was not part of the
marital estate. Rather, the issue presented turned on how that
interest was to be valued. However, there may be occasions when
the issue is whether the business interest should be included in
the marital estate in the first instance.
See Steinmann v.
Steinmann, 2008 WI 43, ¶¶28-29, 309 Wis. 2d 29, 749 N.W.2d 145.
19
No.
Wis.
Stat.
§ 767.61
and
the
policy
2009AP639
considerations
behind
§ 767.61.
¶36
First, while Wis. Stat. § 767.61(2) excludes specific
property from the marital estate, professional goodwill is not
listed therein.
the
marital
Moreover, under § 767.61(3), we presume that
estate
should
be
divided
equally.
As
aforementioned, the presumption of equal division recognizes the
contributions
of
each
spouse
to
the
marriage,
including
a
homemaker spouse's lost earning capacity from being out of the
job
market.
developed
Where
during
the
the
salable
marriage,
it
professional
defies
the
goodwill
is
presumption
of
equality to exclude it from the divisible marital estate.
As
one court has explained:
[T]he wife, by virtue of her position of wife, made to
that [goodwill] value the same contribution as does a
wife
to
any
of
the
husband's
earnings
and
accumulations during the 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.
Golden, 75 Cal. Rptr. at 738.15
¶37
In
sum,
pursuant
to
Wis.
Stat.
§ 767.61,
Wisconsin
case law and the policy supporting the presumption of equality
in the division of the marital estate, we hold that a circuit
court
shall
include
salable
professional
15
goodwill
in
the
In Golden v. Golden, 75 Cal. Rptr. 735 (Ct. App. 1969),
the non-professional spouse was the wife. We recognize that the
roles could easily be reversed, with the non-professional spouse
being the husband.
20
No.
2009AP639
divisible marital estate when the business interest to which the
goodwill is attendant is an asset subject to § 767.61.
¶38
Tim
urges
us
professional goodwill
and
"enterprise"
to
require
circuit
courts
to
into
two
subgroups,
"personal"
goodwill,
and
to
a
create
approach
taken
by
some
courts
and
goodwill
presumption
personal goodwill is excluded from the marital estate.
an
divide
scholars.
that
This is
See
Tiso,
Present Positions, at 53.
¶39
goodwill
When professional goodwill is so divided, enterprise
is
characterized
as
"[g]oodwill
in
a
professional
practice . . . attributable to the business enterprise itself by
virtue of its existing arrangements with suppliers, customers or
others, and its anticipated future customer base due to factors
attributable to the business."
Id. (quoting Yoon v. Yoon, 711
N.E.2d 1265, 1268 (Ind. 1999)); see also May v. May, 589 S.E.2d
536, 541-42 (W. Va. 2003).
Personal goodwill, on the other
hand, is characterized as the goodwill that is "attributable to
the individual owner's personal skill, training or reputation,"
i.e., it is "the goodwill that depends on the continued presence
of a particular individual."
Id. (quoting Yoon, 711 N.E.2d at
1268-69); see also May, 589 S.E.2d at 542.
¶40
Some
courts
that
divide
professional
goodwill
into
enterprise and personal goodwill have concluded that enterprise
goodwill
is
included
in
personal goodwill is not.
the
divisible
marital
estate,
and
This conclusion is based in large
part on the belief that enterprise goodwill is salable, while
personal goodwill is not.
For instance, in Yoon, the Supreme
21
No.
2009AP639
Court of Indiana included enterprise goodwill in the divisible
estate,
explaining
that
while
"[i]t
is
not
necessarily
marketable in the sense that there is a ready and easily priced
market for it, [] it is in general transferable to others and
has a value to others."
Yoon, 711 N.E.2d at 1269.
With respect
to personal goodwill, however, the Yoon court explained that
because personal goodwill depends on the continued presence of
the particular professional, it "represents nothing more than
the
future
earning
capacity
of
the
individual."
Id.
Consequently, based on its belief that personal goodwill is not
salable,
the
Yoon
marital estate.
court
excluded
personal
goodwill
from
the
Id.; see also Antolik v. Harvey, 761 P.2d 305,
317-18 (Haw. Ct. App. 1988).
¶41
personal
circuit
After
and
reviewing
enterprise
courts
to
draw
cases
goodwill,
a
that
we
distinguish
choose
distinction
not
between
between
to
require
personal
and
enterprise goodwill when dividing a marital estate that includes
professional goodwill.
This is so because the premise on which
the distinction is grounded——that enterprise goodwill is salable
and personal goodwill is not——is mistaken.
As evidenced by the
facts of the case at hand, Tim testified that when he bought
Orthodontic Specialists for $930,000, nearly 90 percent of the
sale price was for the professional goodwill.
this
goodwill
as
including
elements
of
Tim described
"personal"
goodwill:
"Dr. Grady's name, the noncompete clause, and the employment
agreement that Dr. Grady would stay on to introduce me to his
22
No.
existing patients."
2009AP639
Therefore, as this case demonstrates, in
some situations, personal goodwill is salable.
C.
¶42
Maintenance and Double Counting
Having concluded that a circuit court shall consider
salable professional goodwill, including what some courts term
"personal" goodwill, as a divisible marital asset, we now set
forth the law applicable to the second issue presented.
second
issue
counted
the
presented
value
is
of
whether
Tim's
the
circuit
professional
court
goodwill
by
The
double
basing
Tracy's maintenance award on Tim's expected future earnings when
the
future
earnings
will
arise
from
Orthodontic
Specialists.
Under Tim's line of reasoning, the circuit court counted the
goodwill
once
marital
when
asset.
it
Tim
treated
the
contends
that
goodwill
the
as
court
a
divisible
then
counted
professional goodwill a second time when it awarded maintenance
based on his past earnings from Orthodontic Specialists, given
that professional goodwill increased those past earnings.
¶43
We begin with an overview of maintenance in Wisconsin.
Maintenance awards16 upon a divorce are governed by Wis. Stat.
§ 767.56.
order
Pursuant to § 767.56, a circuit court "may grant an
requiring
maintenance
payments
to
either
party
for
a
limited or indefinite length of time" after considering a list
of enumerated factors.17
As aforementioned, it is within the
16
Generally, maintenance is "[f]inancial support given by
one person to another, [usually] paid as a result of a legal
separation or divorce."
Black's Law Dictionary 1039 (9th ed.
2009).
17
Those factors are:
23
No.
2009AP639
circuit court's discretion to determine the amount and duration
(1)
The length of the marriage.
(2) The age and physical and emotional health of
the parties.
(3)
767.61.
The
division
of
property
made
under
s.
(4) The educational level of each party at the
time of marriage and at the time the action is
commenced.
(5) The earning capacity of the party seeking
maintenance,
including
educational
background,
training, employment skills, work experience, length
of
absence
from
the
job
market,
custodial
responsibilities for children and the time and expense
necessary to acquire sufficient education or training
to enable the party to find appropriate employment.
(6) The feasibility that the
maintenance can become self-supporting
of living reasonably comparable to that
the marriage, and, if so, the length of
to achieve this goal.
(7)
party seeking
at a standard
enjoyed during
time necessary
The tax consequences to each party.
(8) Any mutual agreement made by the parties
before or during the marriage, according to the terms
of which one party has made financial or service
contributions to the other with the expectation of
reciprocation or other compensation in the future, if
the repayment has not been made, or any mutual
agreement made by the parties before or during the
marriage concerning any arrangement for the financial
support of the parties.
(9) The contribution
by one
party
to
the
education, training or increased earning power of the
other.
(10) Such other factors as the court may in each
individual case determine to be relevant.
24
No.
Rohde-Giovanni, 269 Wis. 2d 598, ¶17.
of maintenance.
2009AP639
However,
the factors enumerated in § 767.56 should be the "touchstone of
analysis" when a court sets maintenance.
LaRocque v. LaRocque,
139 Wis. 2d 23, 32, 406 N.W.2d 736 (1987).
¶44
There are two objectives that an award of maintenance
seeks to meet.
spouse.
The first objective is support of the payee
Id. at 33.
This objective may not be met by merely
maintaining the payee spouse at a subsistence level.
Id. at 35.
Rather, maintenance should support the payee spouse at the predivorce standard.
lifestyle
that
Id.
the
This standard should be measured by "the
parties
enjoyed
in
the
years
immediately
before the divorce and could anticipate enjoying if they were to
stay married."
Id. at 36.
The second objective is fairness,
which aims to "compensate the recipient spouse for contributions
made
to
the marriage, give
arrangements,
or
prevent
effect
unjust
to
the parties' financial
enrichment
of
either
party."
Id. at 33.
¶45
When determining the appropriate maintenance award, we
have instructed courts to start with "the proposition that the
dependent partner may be entitled to 50 percent of the total
earnings of both parties" and then make any needed adjustments
after
considering
Bahr,
107
Wis. 2d
the
72,
Wis.
85,
Stat. § 767.56 factors.
318
N.W.2d
391
(1982);
Bahr
see
v.
also
Heppner v. Heppner, 2009 WI App 90, ¶12, 319 Wis. 2d 237, 768
N.W.2d
261.
Notwithstanding
the
proscribed
starting
point,
"[t]he payment of maintenance is not to be viewed as a permanent
annuity."
Vander Perren v. Vander Perren, 105 Wis. 2d 219, 230,
25
No.
313 N.W.2d
813 (1982).
Rather,
maintenance
is
2009AP639
"designed
to
maintain a party at an appropriate standard of living, under the
facts and circumstances of the individual case, until the party
exercising reasonable diligence has reached a level of income
where maintenance is no longer necessary."
¶46
Id.
As is the case here, concerns about double counting
sometimes arise when awarding maintenance.
We first pronounced
the rule against double counting in Kronforst v. Kronforst, 21
At issue in Kronforst was
Wis. 2d 54, 123 N.W.2d 528 (1963).
the
counting
of
profit-sharing
termination
withdraw
his
Mr.
Kronforst's
trust.
of
his
The
trust
employment,
interest
from
interest
the
was
Mr.
set
in
his
up
so
Kronforst
trust
or
employment
that,
could
have
his
upon
either
interest
disbursed to him in monthly installments over ten years.
Id. at
63.
When dividing the marital estate upon the couple's divorce,
the
circuit
court
included,
as
a
divisible
asset,
Mr.
Kronforst's interest in the trust and awarded the interest to
him.18
Id.
¶47
On
review,
we
concluded
that
the
circuit
court
properly included Mr. Kronforst's interest in the trust in the
divisible estate.
We
held, however,
that the
circuit court
erred when it also considered the payments from the trust as Mr.
Kronforst's income when calculating maintenance.
Id. at 63-64.
We underscored that at the time of trial, Mr. Kronforst was on
18
Ms. Kronforst was awarded 49 percent of the net estate,
and Mr. Kronforst was awarded 51 percent.
Kronforst v.
Kronforst, 21 Wis. 2d 54, 60, 123 N.W.2d 528 (1963).
26
No.
2009AP639
extended medical leave, and therefore, "all probabilities" were
that he would not return to work, meaning that his interest in
the trust would not grow.
Id. at 63.
As such, we opined:
We view the matter no differently than if the $9,749
had constituted cash in a bank deposit standing in
defendant's name. Such an asset cannot be included as
a principal asset in making division of the estate and
then also as an income item to be considered in
awarding alimony.
Id. at 64.
¶48
Our
case
law
since
against double counting.
Kronforst
has
refined
the
rule
In Hommel v. Hommel, 162 Wis. 2d 782,
471 N.W.2d 1 (1991), we held that, generally, it did not violate
the rule against double counting to include "investment income
from assets awarded to a spouse as part of an equal division of
property
that
pursuant
spouse's
to
income
a
divorce
for
settlement
purposes
award to the payee spouse."
of
[when]
revising
Id. at 793.
a
calculating
maintenance
In so holding, we
relied in part on the court of appeal's rationale and holding in
Pelot v. Pelot, 116 Wis. 2d 339, 342 N.W.2d 64 (Ct. App. 1983).
¶49
In
Pelot,
when
dividing
the
marital
estate,
circuit court assigned Mr. Pelot his union pension fund.
341.
the
Id. at
The fund was calculated to have a present value of $9,680
at the time of the property division.
Id.
Later, when Mr.
Pelot moved to modify the maintenance Mr. Pelot was paying to
Ms. Pelot, the circuit court included in Mr. Pelot's income the
monthly benefits from the pension fund.
Id. at 342.
On review,
the court of appeals acknowledged the Kronforst rule against
double
counting,
asserting
that
27
"[i]f
the
present
value
is
No.
2009AP639
included in the estate, then the pension payments themselves are
not [to be] counted as income for purposes of fixing maintenance
when the divorce is granted."
¶50
Id. at 343.
The court went on, however, to question whether the
Kronforst rule is absolute.
Id. at 344.
Specifically, the
court underscored that there is a close relationship between
maintenance
and
property
division,
as
evidenced
by
the
fact
that, pursuant to Wis. Stat. § 767.26(3) (1981-82), one of the
factors
that
a
circuit
court
must
maintenance is the property division.19
close relationship between
maintenance
consider
Id.
and
in
setting
Because of this
property
division,
the court concluded that "if the value of a pension fund is
included in the property division, the court may consider it
when making a maintenance award, although it must be considered
differently from property which can be presently enjoyed."
Id.
at 345.
¶51
Based on this conclusion, the court held that "the
trial court should exclude from [Mr. Pelot's] income his monthly
retirement benefits until those benefits total $9,680, the value
of the fund when it was assigned to him in the divorce."
342-43 (emphasis added).
Id. at
Once Mr. Pelot received the value of
19
The court of appeals pointed out that Kronforst was
decided before the 1977 Divorce Reform Act. Pelot v. Pelot, 116
Wis. 2d 339, 344, 342 N.W.2d 64 (Ct. App. 1983). Consequently,
the statute in effect at that time did not include the
enumerated factors.
See generally Wis. Stat. ch. 247 (1963).
However, as with Wis. Stat. § 767.26(3) (1981-82), one factor
listed in Wis. Stat. § 767.56 is the division of marital
property.
28
No.
2009AP639
the pension assigned to him when the marital estate was divided
(i.e.,
the
$9,680),
considered income.
then
his
Id. at 346.
pension
benefits
could
be
We have since applied the same
rule as the court of appeals applied in Pelot for when pension
benefit
payouts
maintenance.
can
be
considered
income
in
awarding
Olski v. Olski, 197 Wis. 2d 237, 251, 540 N.W.2d
412 (1995) (assuming, based on the facts in the record, that the
employee
husband
had received
the
benefits
awarded
him
property
in
the
full
value
of
division
the pension
and
holding,
therefore, that "all future receipts of pension benefits are
available
in
their
entirety
for
on
in
possible
maintenance
obligations").
¶52
Our
reliance
Pelot
Hommel
illustrates
our
rationale in Hommel for concluding that investment income that
arises from a divided asset can be considered when determining
maintenance.20
As in Pelot, in the typical property division
case involving
a
pension,
the
trial
20
court
may
determine the
While we were not as explicit in explaining our rationale
as we could have been in Hommel, we now attempt to better
illuminate the rationale underlying our holding.
29
No.
present value of the pension.21
pension plan
part,
on
is
calculated,
projected
future
that
2009AP639
When the present value of a
present
benefit
value
payments.
is
See
based,
in
generally
Pelot, 116 Wis. 2d at 341-43; see also Bloomer v. Bloomer, 84
Wis. 2d
124,
130-32,
267
N.W.2d
235
(1978)
(explaining
how
numerous courts have calculated the present value of pension
funds for property division purposes).
Therefore, assuming the
employee spouse is awarded the present value of the asset, he or
she does not receive the value of the asset at the time of the
property division.
future payments.
Rather, the spouse receives that value via
Accordingly, as the court of appeals in Pelot
underscored, it would be double counting to count the present
value of the pension as a divisible asset and also count the
future payments as income, since the income, up to the valuation
placed on the pension at the time of the division, are one and
the same.
21
"We have long recognized that a pension interest is very
difficult to value." Olski v. Olski, 197 Wis. 2d 237, 248, 540
N.W.2d 412 (1995) (citations and internal quotation marks
omitted).
As we have explained, "[t]he problem of valuing
prospective benefits under a pension plan is frequently
exacerbated by the fact that unmatured rights may be terminated
by death, discharge, or other contingencies. . . . Valuation is
further complicated by the dual nature of most pension plans.
If the employee continues to work until retirement, the payments
to the employee, to the extent derived from employer's
contributions, are in the nature of deferred compensation. If,
however, the employee terminates work before retirement age, the
usual plan provides at least for the return of employee
contributions."
Bloomer v. Bloomer, 84 Wis. 2d 124, 130, 267
N.W.2d 235 (1978) (internal citations omitted). This complexity
underscores the necessity to give trial courts "broad discretion
in valuing pension rights." Id. at 134.
30
No.
¶53
2009AP639
Contrarily, when an income earning asset is assigned
to one spouse, as in Hommel, that spouse, generally, receives
the full fair market value of that asset at the time of the
property division.
income property,
Stated otherwise, if the spouse was awarded
that
spouse
could
turn
around
and sell
the
income property the next day and, thereby, attain the value of
the property.
The spouse could also elect to keep the property
and earn income from it.
As the spouse earns income, he or she
does not lose the value of the property because he or she always
has
the
option
to
sell
the
property
for
fair
market
value.
Therefore, unlike pension benefit payments (up to the present
value placed on the pension at the time of the division), the
value of
investment property
earning
counting.
Wis. 2d
separate
from
the
income
it
Consequently, as Hommel held, counting income from
generates.
income
is
assets
will
typically
not
implicate
double
Hommel, 162 Wis. 2d at 792; see also, Heppner, 319
237,
¶18
(concluding
there
is
no
improper
double
counting when income from stock options awarded during property
division is included in income when calculating maintenance).
¶54
Several years after Hommel, in 1997, we again analyzed
the contours of the rule against double counting.
Wis. 2d at 175-85.
Cook, 208
The issue in Cook was whether a military
pension that was divided between the spouses in the property
division
could
maintenance.
require
us
also
be
Id. at 175.
to
"ascertain
considered
income
when
calculating
While the facts of Cook did not
the
precise
scope
of
Kronforst's
'double-counting' rule," from our review of the double-counting
31
No.
2009AP639
case law, we concluded any prohibition of double counting must
be flexible.
Id. at 179.
Namely, we opined that given the
"infinite range of factual situations facing circuit courts in
dividing
property
and
determining
maintenance
and
child
support," it would be unwise to proscribe inflexible doublecounting rules.
Id. at 180.
Instead, we stressed that "the
'double-counting' rule serves to warn parties, counsel and the
courts to avoid unfairness by carefully considering the division
of
income-producing
and
non-income-producing
assets
and
the
probable effects of that division on the need for maintenance
and
the
support."
double
availability
of
income
to
both
parents
for
child
In short, when analyzing whether there has been
Id.
counting,
the
focus
should
be
on
fairness,
not rigid
double-counting rules.
D.
Application
a.
¶55
Goodwill
We now apply the legal principles set forth above to
the facts and circumstances of this case.
Starting with the
value of professional goodwill in Orthodontic Specialists, Tim
contends
that
the
entire
value
of
the
salable
professional
goodwill in Orthodontic Specialists should not be included in
the divisible marital estate.
Specifically, Tim would like what
he classifies as personal goodwill to be excluded.22
Notably,
Tim does not argue that, if, as a matter of law, the entire
22
Tim does not aver that enterprise goodwill is excludable
from the marital estate. See supra ¶17 above.
32
No.
2009AP639
value of Orthodontic Specialists' salable goodwill is includable
in
the
marital
Orthodontic
estate,
the
Specialists'
erroneous.
circuit
value
is
court's
finding
$1,058,000
was
that
clearly
Nor does he challenge that the property should be
divided equally.
¶56
Pursuant to our conclusion above, see supra II.B., the
entire amount of salable professional goodwill was appropriately
included in the marital estate.
Here, Tim has not shown that
the $1,058,000 value placed on Orthodontic Specialists includes
nonsalable goodwill.
Rather, the facts indicate the contrary.
In particular, Tim bought the practice, over a decade ago, for
$930,000.
Approximately 90 percent of this purchase price was
paid for goodwill.
included
"Dr.
Moreover, Tim testified that this goodwill
Grady's
name,
the
noncompete
clause,
and
the
employment agreement that Dr. Grady would stay on to introduce
me to his existing patients, [and] to counsel me through the
process
of
learning
how
to
do
business,"
much
of
which
is
included in what Tim classifies as personal goodwill.
¶57
As the
sale from
in
orthodontic
goodwill
appropriate
an
to
include
the
Dr.
Grady
practice
salable
to
Tim
shows, personal
is
salable.
goodwill
from
Specialists in the divisible marital estate.
It
is
Orthodontic
See Sommerfield,
154 Wis. 2d at 854.
¶58
Moreover,
the
record
is
replete
with
evidence
that
Tracy contributed to the development and success of Orthodontic
Specialists.
business's
There is no question that she helped to create the
goodwill.
Consequently,
33
under
the
statutory
No.
2009AP639
presumption of an equal division of the marital estate and the
contributions of both parties to the creation of the marital
estate herein, the circuit court did not erroneously exercise
its discretion when it included the goodwill associated with
Orthodontic Specialists in the marital estate and divided it on
a 50:50 basis.
Stated otherwise, the circuit court did not
erroneously exercise its discretion when it included the entire
$1,058,000
value
of
Orthodontic
Specialists'
goodwill
in
the
marital estate.
b.
¶59
Double counting
Tim argues that the circuit court double counted the
value of his professional goodwill when it included the goodwill
in
the
divisible
marital
estate,
and
then
based
maintenance award on Tim's expected future earnings.
Tracy's
According
to Tim, the expected future earnings also included the value of
the
goodwill
because
it
was
calculated
using
Tim's
average
income over the preceding five years which was increased by the
goodwill.
¶60
We disagree.
We start by underscoring our directive in Cook that
the rule against double counting is advisory and not absolute.
Cook,
208
counting
income
Wis. 2d
rule
from
does
assets
at
180.
not
As
set
prohibit
awarded
to
a
the
forth
inclusion
spouse
division when calculating maintenance.
792.
above,
as
of
part
the
double
investment
of
property
Hommel, 162 Wis. 2d at
This is so because the value of the investment asset is
separate
from
the
income
it
produces.
Contrarily,
pension
benefit payouts (until they reach the amount of the valuation
34
No.
given
the
pension
as
an
asset
at
the
time
the
of
2009AP639
property
division) do not create value separate from the pension as an
asset at the time of the property division.
at 243-51; Pelot, 116 Wis. 2d at 343.
Olski, 197 Wis. 2d
Applying these principles
to the case at hand, we conclude that the salable professional
goodwill in Orthodontic Specialists is similar to an asset that
produces income.
¶61
As
with
an
income
producing
asset,
the
value
of
Orthodontic Specialists at the time of the property division had
a set value, namely, $1,058,000.
of
the
property
Specialists
and
division,
realized
If Tim so chose, at the time
he
could
this
have
value.
sold
Or,
he
Orthodontic
could
retain
Orthodontic Specialists, earn income from it and sell it at a
later time.
Consequently, Tim has the option of continuing to
generate substantial income from Orthodontic Specialists without
diminishing its value.
that
if
Tim
works
$465,000 annually.
this
income
is
40
Specifically, the circuit court found
hours
per
week,
Tim's
income
will
be
As with income from an income earning asset,
separate
from
the
value
of
Orthodontic
Specialists as it existed at the time of the property division.
Consequently, the circuit court did not double count Orthodontic
Specialists'
erroneously
professional
exercise
its
goodwill
and,
discretion
therefore,
when
it
did
awarded
not
Tracy
$16,000 per month, for 20 years, in maintenance.
III.
¶62
goodwill
CONCLUSION
We conclude the entire value of salable professional
was
properly
counted
as
35
divisible
property
in
the
No.
marital estate.
2009AP639
Moreover, we conclude that the circuit court
did not double count the professional goodwill from Orthodontic
Specialists in the maintenance award.
Accordingly, we affirm
the decision of the court of appeals.
By
the
Court.—The
decision
affirmed.
36
of
the
court
of
appeals
is
No.
1
2009AP639
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