Prahinski v. Prahinski

• Decision Date: 01 September 1988
• Docket Number: No. 62,62
• Citation: 321 Md. 227,582 A.2d 784
• Parties: , 59 USLW 2431 Margaret E. PRAHINSKI v. Leo PRAHINSKI. ,
• Court: Maryland Court of Appeals

Page 227

321 Md. 227

582 A.2d 784, 59 USLW 2431

Margaret E. PRAHINSKI v. Leo PRAHINSKI.

No. 62, Sept. Term, 1988.

Court of Appeals of Maryland.

Dec. 6, 1990.

M. Albert Figinski (Arnold M. Weiner, Peter B. Rosenwald, II, Melnicove, Kaufman, Weiner, Smouse & Garbis, P.A., on brief), Arnold M. Weiner Baltimore, for petitioner.

Daniel F. Thomas (Thomas & Kalichman, on brief), Daniel F. Thomas, Baltimore, for respondent.

Argued before ELDRIDGE, COLE, RODOWSKY, McAULIFFE, ADKINS, BLACKWELL, JJ. and CHARLES E. ORTH, Jr., Judge of the Court of Appeals, (retired) Specially Assigned, JJ.

Reargued before MURPHY, C.J., ELDRIDGE, COLE, RODOWSKY, McAULIFFE, CHASANOW and CHARLES E. ORTH, Jr., Judge of the Court of Appeals, (retired), Specially Assigned, JJ.

COLE, Judge.

In this case we must determine whether the goodwill of a solo law practice is a value includable as marital property for purposes of calculating a monetary award upon divorce.

The facts are neither complicated nor in dispute. Margaret and Leo F. X. Prahinski were married on March 20, 1965. Margaret discontinued her education after her freshman year in college in order to maintain the family home. Leo continued his formal education and eventually obtained a law degree. In 1971, Leo started his own law practice. Margaret became his secretary, and as the law practice grew, so did Margaret's responsibilities in the office. Gradually, the focus of the practice shifted to real estate settlements and Margaret's position evolved into that of office manager.

Leo became involved with another woman in 1983. The parties separated thereafter, and Margaret filed for divorce on November 14, 1986. The Circuit Court for Prince George's County granted an absolute divorce, and on July 10, 1987, the court filed a written order determining what was marital property, providing for distribution of marital assets, and granting both a monetary award and indefinite alimony. Included in the monetary award was one-half of the value of the law practice.

Leo appealed to the Court of Special Appeals claiming that the trial court erred in considering his law practice to be marital property consisting totally of goodwill and dividing the value thereof equally between the parties. Leo also questioned the propriety of setting the amount of alimony at a time far in advance of when the alimony payments were to commence.

The Court of Special Appeals, 75 Md.App. 113, 540 A.2d 833 (1988), held that the value of the practice consisted entirely of the reputation of Leo F. X. Prahinski, Attorney-at-Law, and was therefore personal to him. As such, the value of the practice was not marital property and could not be subject to distribution as part of the monetary award. The intermediate appellate court left open the possibility that goodwill in a solo practice could be marital property if it could be shown that the goodwill was severable from the reputation of the practitioner. Additionally, the Court of Special Appeals held that it was improper for alimony to be set now when the payments were not to begin until some future time because it would be impossible to predict the economic circumstances of the parties on the date when alimony was to begin. Furthermore, that court held that alimony should take into consideration the monetary award. Since that award must be recalculated, that court declared the previous alimony calculation was invalid. The intermediate appellate court, therefore, remanded the case to the trial court for proper calculation of both the monetary award and alimony. Margaret petitioned this Court for certiorari which we granted in order to address the important issue involved.

We set forth several sections of the Maryland Code (1984, 1989 Cum.Supp.) Family Law Article which we believe impact upon our disposition of this case.

Section 8-201(e) provides:

(e) Marital property.--(1) "Marital Property" means the property, however titled, acquired by 1 or both parties during the marriage.

(2) "Marital property" does not include property:

(i) acquired before the marriage;

(ii) acquired by inheritance or gift from a third party;

(iii) excluded by valid agreement; or

(iv) directly traceable to any of these sources.

Section 8-203 --Marital Property.--Determination. (a) Time of court action.--In a proceeding for an annulment or an absolute divorce, if there is a dispute as to whether certain property is marital property, the court shall determine which property is marital property:

(1) when the court grants an annulment or an absolute divorce[.]

Section 8-205 provides in pertinent part

(a) Grant of award.--Subject to the provisions of subsection (b) of this section, after the court determines which property is marital property, and the value of the marital property, the court may transfer ownership of an interest in a pension, retirement, profit sharing, or deferred compensation plan from 1 party to either or both parties, grant a monetary award, or both, as an adjustment of the equities and rights of the parties concerning marital property, whether or not alimony is awarded.

(b) Factors in determining amount and method of payment or terms of transfer.--The court shall determine the amount and the method of payment of a monetary award, or the terms of the transfer of the interest in the pension, retirement, profit sharing, or deferred compensation plan, or both, after considering each of the following factors:

(1) the contributions, monetary and nonmonetary, of each party to the wellbeing of the family;

(2) the value of all property interests of each party;

(3) the economic circumstances of each party at the time the award is to be made;

(4) the circumstances that contributed to the estrangement of the parties;

(5) the duration of the marriage;

(6) the age of each party;

(7) the physical and mental condition of each party;

(8) how and when specific marital property or interest in the pension, retirement, profit sharing, or deferred compensation plan, was acquired, including the effort expended by each party in accumulating the marital property or the interest in the pension, retirement, profit sharing, or deferred compensation plan, or both;

(9) any award of alimony and any award or other provision that the court has made with respect to family use, personal property or the family home; and

(10) any other factor that the court considers necessary or appropriate to consider in order to arrive at a fair and equitable monetary award or transfer of an interest in the pension, retirement, profit sharing, or deferred compensation plan, or both.

Under the above provisions, it seems to us that trial courts are required first to determine which property is marital, what the value of this marital property is, and then to apply the ten factors in § 8-205(b) to determine what monetary award represents an "adjustment of the equities and rights of the parties" in the marital property.

Margaret argues that the value of the practice should be considered marital property, and therefore subject to a monetary award to compensate her for her contributions thereto. She insists that the majority of the work handled by the practice did not require an attorney, and that she contributed the overwhelming majority of the time and effort which made the practice successful. To deny her an equitable share of the goodwill inherent in the practice, she claims, would frustrate the purpose of the monetary award statute, which seeks to adjust the rights of the parties based upon their contributions during the marriage.

Specifically, Margaret contends that goodwill is a form of property which the practice acquired during the marriage; hence it fits the definition of marital property, no matter whose name is on the business. She further urges this Court to adopt the position that the professional goodwill of a sole proprietorship is valuable property to be included in the marital estate.

Leo maintains that his vocation has always been a solo law practice. As such, any intangible value assigned to the business is a result of his personal reputation as an attorney. The only way that goodwill could be considered marital property, he argues, is if the goodwill had a value independent of the continued presence or reputation of the sole practitioner. He contends that he is the only person who can practice under the name "Leo F.X. Prahinski, Attorney-at-law." He claims he could not sell his practice and its intangible assets to anyone; therefore, he concludes that the goodwill is personal to him and should not be considered marital property.

The characterization of goodwill and its relationship to a business is crucial to the determination of this issue. In Hagan v. Dundore, 187 Md. 430, 50 A.2d 570 (1946), we examined the sale of a partnership interest. In so doing, we took notice of the definitions of goodwill applied by other jurisdictions. One such definition states: "The goodwill of a business comprises those advantages which may inure to the purchaser from holding himself out to the public as succeeding to an enterprise which has been identified in the past with the name and repute of his predecessor." Id. at 442, 50 A.2d at 576 (quoting Knoedler v. Boussod, 47 F. 465, 466 (S.D.N.Y. 1891), aff'd, 55 F. 895 (2d Cir.1893)) (emphasis added). According to this definition, goodwill can exist in those situations in which a business has successive owners, each one benefitting from the management of the business by the preceding owners.

Goodwill exists, however, in businesses that are still in the hands of their founders and which may never be sold. We took notice of such a situation in Brown v. Benzinger, 118 Md. 29, 84 A. 79 (1912), where we quoted Lord Eldon's definition of goodwill as "the probability that the old customers will resort to the old place." Id. at 35, 84 A. at 81 (quoting Cruttwell v. Lye, 34 Eng.Rep. 129, 134 (Ch. 1810)). Such a definition provides for the presence of goodwill...