In the case of Walsh v. Walsh, the Arizona Court of Appeals was faced with determining the value of the husband’s professional goodwill in the branch of a national firm of which he was a shareholder. The wife valued husband’s goodwill in the firm at $1,269,000 by using a capitalization of earnings approach. The family court disagreed and valued the community interest in the husband’s goodwill at $140,000 by applying a “realizable benefits standard” to husband’s Stockholder Agreement.
The Court held that the value of the husband’s goodwill in the firm was not limited to the husband’s stock redemption value, nor to the husband’s earning capacity “per se.” Instead, the goodwill value depends on the value to the professional spouse. There is no method of valuation rule as to goodwill, and the Court held that here, the family court erred in applying the “realizable benefits” standard (generally used to value net assets) when there was evidence that the husband’s goodwill had a greater value.
Leonard Karp & Katherine Scott are family law attorney and an associate, respectively, with Karp & Weiss, a Martindale-Hubbell “AV” rated law firm, the highest possible rating.