Richmond v. Richmond, S-2209

• Decision Date: 15 September 1989
• Docket Number: No. S-2209,S-2209
• Parties: Robert L. RICHMOND, Appellant, v. Margaret T. RICHMOND, Appellee.
• Court: Alaska Supreme Court

Page 1211

779 P.2d 1211

Robert L. RICHMOND, Appellant, v. Margaret T. RICHMOND, Appellee.

No. S-2209.

Supreme Court of Alaska.

Sept. 15, 1989.

James D. Gilmore and Jeffrey M. Feldman, Gilmore & Feldman, Anchorage, for appellant.

Robert H. Wagstaff, Wagstaff, Pope & Clocksin, Anchorage, for appellee.

Before MATTHEWS, and RABINOWITZ, BURKE, COMPTON and MOORE, JJ.

OPINION

COMPTON, Justice.

This appeal is from the property division, alimony, child support, and attorney fees and costs judgment in a domestic proceeding between Robert and Margaret. Robert asserts that the professional goodwill of an attorney is unmarketable and hence the trial court erred by including his professional goodwill in the marital estate. He also contends that the trial court erred by accepting an improper value for his law firm's tangible assets, awarding Margaret $3,000 per month alimony for six years, $1,000 per month per child for child support, and approximately $80,000 in attorney fees and costs.

I. FACTUAL AND PROCEDURAL BACKGROUND

At the time Margaret and Robert were married in 1967, Robert was attending law school on the "G.I. Bill." Both Robert and Margaret worked while Robert was in law school. After Robert graduated, they came to Alaska, and Robert began practicing law. At the time this proceeding was filed, Robert was the sole shareholder of his professional corporation.

Although Margaret did some work at the law firm for Robert and managed the couple's condominiums and personal finances, she was primarily a homemaker, raising the couple's three children. ¹ Robert and Margaret separated on October 24, 1984. The division of property, alimony, child support and attorney fees and costs were determined at trial in 1986. Child custody was settled by stipulation. The trial court awarded Margaret approximately $1.2 million in marital assets. This was essentially all the marital estate except Robert's law practice, which was awarded to him. The law practice was valued by Margaret's expert at $1.125 million; her expert valued the tangible assets of the law practice at $457,000 and Robert's goodwill at $550,000. These values were accepted by the trial court. Robert's expert valued Robert's law practice at $189,500. His expert valued Robert's goodwill at between $5,000 and $15,000.

The trial court also awarded Margaret $3,000 per month alimony for six years, $3,000 per month child support ($1,000 per month per child), and approximately $80,000 for attorney fees and costs. Judgment was entered April 30, 1987. Facts pertinent to each issue are addressed in the discussion.

II. DISCUSSION

A. PROPERTY DIVISION.

Robert appeals the property division. He argues that his professional goodwill is unmarketable and therefore not part of the marital estate. He also objects to the valuation of his law practice's tangible assets.

Property divisions are reviewed to determine "whether the trial court abused the broad discretion given it under AS 25.24.160(a)(4)." Moffitt v. Moffitt, 749 P.2d 343, 346 (Alaska 1988). The trial court must use a three-step process in dividing property: First, the trial court is to determine what property is available for division; this determination is reviewed under an abuse of discretion standard "although it may involve legal determinations, which this court reviews independently." Id. Second, the trial court is to value the property; this is a factual inquiry to be reversed only if clearly erroneous. Id. Third, the trial court is to equitably allocate the property; this determination is reviewed applying an abuse of discretion standard and set aside only if clearly unjust. Id. Because Robert raises the legal question whether goodwill is available for distribution, this court will independently review the trial court's decision to include goodwill in the marital estate.

1. Marketability of Robert's Professional Goodwill.

The goodwill of a professional corporation is property which may be includable in the marital estate in a divorce proceeding. See Rostel v. Rostel, 622 P.2d 429, 430-31 (Alaska 1981). In Rostel we held that income earning capacity attributable solely to the expertise, talents and personality of one spouse is property subject to division by the court. Id. No distinction was made between marketable and unmarketable goodwill. Id. We narrowed our position on professional goodwill in Moffitt, 749 P.2d at 347. There we held that only marketable goodwill was to be included in the marital estate. Id. The court chose this approach "because to award the value of an unmarketable asset to an ex-spouse might restrict the liberty of the spouse who possesses that asset." Id. at n. 3. In order that an ex-spouse's liberty not be restricted, this court will not divide goodwill that cannot be sold. Id.

Robert contends that his law practice has no marketable professional goodwill, and that the trial court erred by including his professional goodwill in the marital estate. We continue to adhere to the view we expressed in Moffitt and conclude that Robert is correct.

In Moffitt, we articulated a two-part test for assessing the divisibility of professional goodwill. Moffitt, 749 P.2d at 347. The trial court must first determine if goodwill exists. Id. If the trial court determines that goodwill exists, "it then must determine whether the good will could actually be sold to a prospective buyer." Id. "If the trial court determines either that no good will exists or that the good will is unmarketable, then no value for good will should be considered in dividing marital assets." ² Id.

We express no opinion regarding the marketability of a multi-lawyer law firm's professional goodwill. ³ It may be that marketable professional goodwill exists in a multi-lawyer firm, for example, upon evidence of sales or purchases of partnership interests.

In this case it is clear that Robert's goodwill is unmarketable. The uncontroverted evidence established that his law practice's goodwill could not be sold. ⁴

We conclude that Robert has no marketable professional goodwill in his law practice, and that the trial court erred by including his professional goodwill in the marital estate.

2. Valuation of the Law Firm's Tangible Assets.

Robert contends that three errors were made in valuing the tangible assets of the law firm. He asserts errors in valuing the accounts receivable, equipment, and work in progress.

Margaret's expert valued Robert's law firm's accounts receivable at their book value of $202,454. He made no provision for bad debts. He reasoned that no bad debt reserve was warranted because Robert's practice was primarily insurance company defense. Thus, he felt 100% of the accounts were collectible.

Robert's expert valued Robert's law firm's accounts receivable at $180,018. He arrived at his figure by using the actual amount collected out of the $202,454 receivable as of October 24, 1984. He determined that $22,436 of the accounts receivable on October 24, 1984, had been written off.

It was clearly erroneous for the trial court to rely on Margaret's figures. The trial court had the actual figures before it and did not have to rely on Margaret's expert's incorrect assumption.

The valuation of the firm's office equipment, accepted by the court, was based on replacement cost, arrived at by reference to Robert's corporate insurance policy. Robert relied on a valuation by William Borchardt, manager of Arctic Office Products, for the equipment's fair market value. Upon questioning from the bench, Mr. Borchardt indicated that his valuation was based on the fair market value at the time of trial in 1986, not the value as of October 24, 1984, the date agreed on for valuation.

Again, it was clear error to accept Margaret's valuation of the equipment. Reliance on the replacement cost of the equipment was not in accordance with acceptable valuation methods. The trial court should have looked to the fair market value of the equipment. Cf. Hayes v. Hayes, 756 P.2d 298, 299 (Alaska 1988) (rejecting valuation of business based on insurance funded buy out agreement). However, Mr. Borchardt's valuation was of no evidentiary value. On remand the trial court should ascertain or estimate the fair market value of the equipment as of October 24, 1984.

Robert also objected to Margaret's valuation of his firm's work in progress. It was valued at $155,584, based on data from the Altman-Weil survey for year ending 1984. ⁵ Robert used records of his law firm to value work in progress at $60,935. This figure was based on records the firm began keeping in May 1985 and calculations based on work in progress as of February 28, 1985. Robert's expert worked backwards from these figures to determine work in progress on October 24, 1984.

Relying on a national survey when actual figures are available is an abuse of discretion. If the trial court found Robert's figures unreliable, it could have obtained reliable figures to value the work in progress. Based on the foregoing, we have a definite and firm conviction that a mistake was made in valuing Robert's law firm's tangible assets. Therefore, we remand the valuation for redetermination.

B. TRIAL COURT'S AWARD OF ALIMONY.

Margaret was awarded $3,000 per month alimony. The "rehabilitative alimony" was to be paid for six years "to assist her in the transition from being a participant in an economic partnership to supporting herself." Margaret contends that the court's award of alimony in this amount was justified by the need to equalize her earnings with Robert's. Robert challenges this award. He argues that it is unjust, unnecessary and contrary to decisions of this court.

An award of alimony is within the trial court's discretion and will be set aside only if it is unjust or unnecessary. Messina v. Messina, 583 P.2d 804 (Alaska 1978). Recently, we reiterated our position that alimony is not "just and necessary" when the property division can adequately provide for the "reasonable needs...