Donahue v. Donahue

• Citation: 384 S.E.2d 741,299 S.C. 353
• Decision Date: 03 May 1989
• Docket Number: No. 23083,23083
• Court: United States State Supreme Court of South Carolina
• Parties: , 58 USLW 2259 Janis F. DONAHUE, Respondent, v. James M. DONAHUE, Appellant. . Heard

Page 741

384 S.E.2d 741

299 S.C. 353, 58 USLW 2259

Janis F. DONAHUE, Respondent, v. James M. DONAHUE, Appellant.

No. 23083.

Supreme Court of South Carolina.

Heard May 3, 1989.

Decided Sept. 25, 1989.

Harvey L. Golden and Douglas K. Kotti, Columbia, for appellant.

Victoria L. Eslinger and Deborah R.J. Shupe, Columbia, for respondent.

HARWELL, Justice:

This is a domestic case involving alimony, child support, equitable distribution, inclusion of goodwill in the valuation of a professional practice and attorneys' fees. We affirm in part, reverse in part, and remand.

FACTS

The parties in this case were married on February 15, 1979. The husband is 32 years old and the wife is 41 years old. The parties have a 7 year old child. The wife has two children from a previous marriage who had become emancipated at the time of this hearing and were no longer living with the parties.

In the Fall of 1979, the husband entered dental school. His family deposited money for his tuition and books into an account which he maintained separately. These funds were not used for household expenses or to otherwise support the family. Household expenses and money for family support ¹ were provided by the wife during the four years the husband attended dental school and thereafter until the opening of his dental practice.

Upon the husband's graduation from dental school in the Spring of 1984, the parties moved to Columbia where they lived with the wife's family for 5 months before moving into their own home. In January of 1984, the husband opened his own dental practice. In order to fund the practice, the wife co-signed several loans, offering personal property as security. She also assisted the husband in preparing for the opening of the practice by selecting furniture and business cards and designing a business sign.

Sometime after the practice opened in 1984, the husband began having an extramarital affair. The parties experienced marital discord, and the husband left the marital home on several occasions, but returned each time shortly after leaving. Finally, after a series of these episodes the wife filed for divorce on the ground of adultery. After a final hearing held on September 30, and October 8, 1987, the judge issued an Order granting the divorce on the ground of adultery, awarding custody of the minor child to the wife, requiring the husband to pay child support and reserving the wife's right to alimony. The Order also distributed the marital property and awarded the wife attorneys' fees, detective fees and other costs associated with

                this action.   The husband appeals all portions of the Order except child custody
                

DISCUSSION

I. ADULTERY

The husband first argues that the family court erred in granting the wife a divorce on the ground of adultery. We disagree.

Adultery may be proven by either direct or circumstantial evidence or a combination of the two. Circumstantial evidence is just as good as direct evidence if it is equally convincing and establishes the disposition to commit the offense and the opportunity to do so. Anders v. Anders, 285 S.C. 512, 515, 331 S.E.2d 340, 342 (1985); Fulton v. Fulton, 293 S.C. 146, 359 S.E.2d 88 (Ct.App.1987). We have reviewed the record in light of these standards and hold that it supports the family court's finding of adultery. ² Written detective reports placed the husband at the home of his alleged paramour overnight on more than one occasion. The husband admitted spending the night with his paramour and to sleeping in her bed. There was additional testimony from the wife as to her observation of the paramour's car outside the husband's office all night. There was a bed in the office. Further, during deposition, the husband admitted that he knew his wife had "the goods on him." Ample evidence existed to support a grant of divorce on the ground of adultery.

II. HUSBAND'S DENTAL PRACTICE

A. INCLUSION IN MARITAL ESTATE

The trial court found that because of the wife's substantial contributions to the husband's dental practice, she was entitled to an equitable interest in the practice. The husband contends that this was error and cites as authority for this proposition the cases of Helm v. Helm, 289 S.C. 169, 345 S.E.2d 720 (1986) and Heath v. Heath, 295 S.C. 312, 368 S.E.2d 222 (Ct.App.1988).

In Helm and Heath, this Court and the Court of Appeals, respectively, held that a professional degree is not marital property and is therefore not subject to equitable distribution. Here, however, we are concerned not with appellant's degree, but with his practice, therefore Helm and Heath are inapplicable.

One spouse's contributions to another spouse's business may create a special equity in his or her favor. Poniatowski v. Poniatowski, 275 S.C. 11, 266 S.E.2d 787 (1980). It is not error to consider the assets of a spouse's business in the division of marital property given evidence that the wife materially contributed through personal services to that business. Reid v. Reid, 280 S.C. 367, 312 S.E.2d 724 (Ct.App.1984).

Here, the wife's contributions entitled her to an interest in the husband's business. We therefore hold that the family court judge in this case did not err in including the value of the dental practice in the estate; we disagree, however with the judge's inclusion of goodwill in the valuation of the practice.

B. INCLUSION OF GOODWILL IN VALUATION

Appellant argues that the family court erred in allowing the goodwill of his dental practice to be valued and equitably distributed. The issue of whether goodwill is subject to equitable distribution was first addressed by this Court in Casey v. Casey, 293 S.C. 503, 362 S.E.2d 6 (1987). In Casey, we recognized the speculative nature of goodwill, which is dependent upon an owner's future earnings, and held that such goodwill could not be made part of the marital estate subject to equitable distribution. In the present case, we must decide whether the holding in Casey should be extended to apply to goodwill in a professional solo practice.

The decision as to the inclusion of goodwill of a professional practice in a marital estate is, "in the final analysis, a public policy issue." Powell v. Powell, 231 Kan. 456, 648 P.2d 218, 223 (1982). The following is a well-recognized definition of goodwill:

Goodwill may be properly enough described to be the advantage or benefit which is acquired by an establishment beyond the mere value of the capital, 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 partialities or prejudices.

Levy v. Levy, 164 N.J.Super. 542, 549, 397 A.2d 374, 377 (1978) citing In re Ball's Estate, 161 App.Div. 79, 80-1, 146 N.Y.S. 499, 501 (1914).

More specifically, professional goodwill has been held to have the following attributes:

It attaches to the person of the professional man or woman as a result of confidence in his or her skill and ability. [cite omitted] It does not possess value or constitute an asset separate and apart from the professional's person, or from his individual ability to practice his profession. It would be extinguished in the event of the professional's death, retirement or disablement. [cite omitted]

Rathmell v. Morrison, 732 S.W.2d 6 (Tex.App. 14th Dist.1987).

"The very nature of a professional practice is that it is totally dependent upon the professional." Powell, 648 P.2d at 223. The definitions set forth above indicate the intangible nature of the goodwill asset. It is this intangibility which inevitably results in a speculative valuation. The basis of this Court's concern in Casey was the speculative element involved in valuation of goodwill. In light of the definitions above, we see similar problems in the valuation of goodwill of a professional practice.

Accordingly, we hold that the family court erred in placing a value upon, and consequently dividing the goodwill of the husband's dental practice. Because the expert testified that the only value of the practice was its goodwill, the wife is not entitled to any money from the practice.

III. POSSESSION OF MARITAL HOME

The judge awarded the wife title to the marital home, specifically allowing that this would serve as part of her equitable distribution award. Appellant incorrectly contends that this was error and that title to a marital home can only be awarded as an incident of support, and then only if compelling circumstances exist.

In order to effect an equitable apportionment, the family court may require the sale of marital property and a division of the proceeds. S.C.Code Ann. § 20-7-476 (Supp.1987). The court should first attempt an "in-kind" distribution of the assets. Stevenson v. Stevenson, 295 S.C. 412, 415, 368 S.E.2d 901, 903 (1988). A family court may grant a spouse title to the marital home as part of the equitable distribution. Brown v. Brown, 279 S.C. 116, 302 S.E.2d 860 (1983).

Here, the wife received the marital home as her share of the total marital estate, not as an incident of support. Part of the reason she was awarded the home was to compensate her for the $23,000 she was entitled to as a result of contributions to the husband's dental practice. Since we have ruled above that she was not entitled to this $23,000, as it was based only on goodwill, we must also remand the award of the marital home for reconsideration. Accordingly, while the husband is incorrect in arguing that the court could not award the wife title, we must nonetheless remand because of our decision on the goodwill issue.

IV. EQUITABLE DISTRIBUTION

The facts in this case established that the wife's direct contributions to the marital estate totalled $251,000.00 (91%) whereas the husband's direct contributions totalled...