Hanson v. Hanson
| Decision Date | 15 September 1987 |
| Docket Number | 69067,Nos. 68827,s. 68827 |
| Parties | , 56 USLW 2219 Brenda M. HANSON, Plaintiff-Respondent, v. Jonathan Grant HANSON, Defendant-Appellant. Barbara GRAHAM, Petitioner-Appellant/Cross-Respondent, v. Richard GRAHAM, Respondent-Respondent/Cross-Appellant. |
| Court | Missouri Supreme Court |
Dale C. Doerhoff, Jefferson City, for Jonathan Hanson.
James W. Gallaher, Jefferson City, for Richard Graham.
Jean E. Goldstein, James C. Butcher, Columbia, for respondents.
These are consolidated appeals arising out of decrees of dissolution of marriage entered by the Circuit Courts of Boone County and Cole County. The husbands in the consolidated cases are the sole partners in an oral surgery partnership. In Hanson v. Hanson, the Circuit Court of Boone County valued the partnership at $324,862, including $233,727, an amount characterized as "goodwill" by the parties. In Graham v. Graham, the Circuit Court of Cole County, hearing virtually identical evidence, valued the same partnership at $90,280.
The Western District affirmed the judgment of the Circuit Court of Boone County in Hanson v. Hanson as to the dissolution of the marriage "and the determination that professional goodwill is a divisible asset" but reversed the case "in all other respects."
We granted transfer to determine whether our dissolution of marriage laws recognize the existence of goodwill in a professional practice as a marital asset and to determine the extent to which those laws permit the division of such goodwill upon dissolution of marriage. Following our grant of transfer in Hanson v. Hanson, No. 68827, the Court of Appeals, Western District, received a notice of appeal in Graham v. Graham, No. 69067; that court recommended, and we granted, transfer prior to opinion in the Graham case. We have jurisdiction. Mo. Const. art. V, sec. 10.
We hold that goodwill in a professional practice is a marital asset subject to division in dissolution proceedings. The judgment of the Circuit Court of Boone County in Hanson v. Hanson is affirmed in part, reversed in part and remanded with directions. The judgment of the Circuit Court of Cole County in Graham v. Graham is affirmed in part, reversed in part, and remanded with directions.
Drs. Graham and Hanson formed their partnership for the practice of oral surgery in Jefferson City, Missouri, in July, 1973. At trial, both Mrs. Hanson and Mrs. Graham employed Stephen Smith, a C.P.A., as an expert witness. Smith valued the oral surgery partnership as follows:
$ 39,750.00 equipment
$ 51,385.00 accounts receivable
$351,077.00 going concern value
--------------------------------
$442,212.00 Total Value
Smith defined "going concern value" as the "opportunity to walk into a successful situation and to start work and earn money without having to build the practice." Smith further testified that going concern value represented the ability of the buyer to trade on the past reputation of the seller.
Smith applied an 85 percent capitalization rate to the previous year's gross receipts to determine the value of the partnership. This capitalization rate was the product of Smith's assessment of the partnership's "monopolistic" position in the Jefferson City market, its expenses, the degree of risk attendant to the practice, and the reputation of the practice and the practitioners in the community. From these factors, Smith fashioned a tentative going concern value for the partnership. He compared his tentative conclusions to the national average sales price for oral surgery practices, for gross production per oral surgeon, and for average revenues and expenses for oral surgery partnerships containing five or fewer oral surgeons. From these considerations Smith reached his conclusion as to the appropriate capitalization factor to apply to the Graham and Hanson partnership.
Smith defined "goodwill" as the excess of return in a given business over the average or norm that could be expected for that business. Smith found no such excess in the partnership, and thus no goodwill, even though he testified that going concern value contained a component of the seller's reputation.
Both Dr. Hanson and Dr. Graham produced Elmer Evers, C.P.A. as an expert for purposes of valuing their partnership interests. Evers valued the partnership at $91,000, the approximate value of equipment, cash on hand and accounts receivable. Evers compared sales of professional practices in the area served by the partnership, the nature of the partnership's patronage, and the reputation of the partners to determine that neither goodwill nor going concern value existed in the partnership.
Dr. Thomas Coyle, an oral surgeon practicing in Columbia, Missouri, testified on behalf of Dr. Hanson. Dr. Coyle bought into a partnership with another oral surgeon already in practice in Columbia in 1975. He testified that his purchase price included neither an amount for goodwill nor for the going concern value of the existing practice. Upon the retirement of Dr. Coyle's partner, Dr. Coyle bought his partner's interest in the partnership; again, Dr. Coyle paid nothing for goodwill or going concern value.
Drs. Graham and Hanson introduced their partnership agreement in their respective cases. Paragraph eight of that agreement provided:
The value of the interest of a withdrawing partner shall be the sum of: (a) One-half of the reasonable market value of the fixtures, equipment and contents of the office partnership; (b) His proportionate share of the accrued net profits; (c) One-half of all accounts receivable as of the date of dissolution which can be reasonably expected to be collected in the first six months following the date of dissolution; (d) No value for goodwill or firm name shall be included in any computations of a partner's interest; (e) If a net loss has been incurred to the date of dissolution, his share of such loss shall be deducted.
Dr. Hanson testified that profits were drawn from the partnership account twice monthly; there were no accrued net profits.
Dr. and Mrs. Hanson married on March 20, 1974. By the time of the marriage, Dr. Hanson had already completed his oral surgery training, had retired all but $1,000 of the debt he incurred to finance his education and had opened the oral surgery practice with Dr. Graham. Mrs. Hanson came to the marriage with a nursing degree. Following the marriage, Mrs. Hanson continued to pursue her nursing career. She earned a Master's Degree in nursing in December, 1981. At the time of the trial, Dr. Hanson earned approximately $120,000 per year in his oral surgery practice; Mrs. Hanson earned approximately $7,000 per year. There were no children.
The Boone County Circuit Court valued the partnership at $324,862.00, an amount which included the fair market value of the partnership's equipment ($39,750), the accounts receivable ($51,385) and the partnership's ordinary income for 1984 ($233,727). The trial court noted that it used "the valuation technique contained in paragraph 8 of [the Graham and Hanson] partnership agreement." The court dissolved the marriage, ordered maintenance in favor of Mrs. Hanson of $1,000 per month for 24 months, and divided the other assets of the parties, including Dr. Hanson's share of the partnership.
Dr. Hanson appeals the valuation of his partnership interest by the circuit court. He attacks the admissibility of the testimony of Mrs. Hanson's expert, Mr. Smith. He also assigns error (1) to the division of a portion of the marital property on an equal basis where appellant provided 95 percent of the marital assets, (2) in the court's valuation of a money market account, and (3) the valuation of a bank account.
Dr. and Mrs. Graham married on May 24, 1969. The marriage produced two children. By the time of the marriage, Dr. Graham had completed his dental studies; he finished his oral surgery training during the marriage. Mrs. Graham completed registered nurse training prior to the marriage. In 1978, the Grahams began investing in real estate. The couple accumulated several parcels of improved real estate, Mrs. Graham managed the couple's properties. In 1980, she obtained a real estate license and began selling real estate on a full-time basis. In 1983, Mrs. Graham grossed approximately $27,000 as a real estate salesperson. After the couple's separation in 1983, her income declined to $5,000 in 1984. Dr. Graham earned approximately $120,000 per year at the time of the trial.
The Circuit Court of Cole County dissolved the marriage, valued Dr. Graham's interest in the partnership at $45,140, divided the marital property equally between the parties, awarded Mrs. Graham permanent maintenance of $500 per month to continue until remarriage, death or modification by court order, awarded custody of the minor son to Dr. Graham and of the minor daughter to Mrs. Graham, established reasonable rights of visitation to the noncustodial parent, and fixed Dr. Graham's child support obligation at $500 per month, payable to Mrs. Graham.
Both parties appealed the trial court's order. Mrs. Graham assigns error to the court's valuation of Dr. Graham's interest in the oral surgery partnership. She also contends the trial court erred in (1) valuing certain items of personal property, (2) valuing bank accounts held in the names of the minor children, (3) valuing a Keough Plan, (4) valuing the Graham's investment real property and (5) failing to award her attorney's fees and costs. Dr. Graham appeals the trial court's award of permanent maintenance to Mrs. Graham.
Section 452.330.1, RSMo 1986, authorizes the court to "set apart to each spouse his property and ... divide the marital property in such proportions as the court deems just...." Marital property is "all property acquired by either spouse subsequent...
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