Divorce court limits personal goodwill value to non-compete

In the third case in as many months to decide the value of a dental practice in divorce (see BVWire # 96-2 and BVWire #96-4), the Ohio Court of Appeals just considered the effect of the sale of the practice during the proceedings. For reasons the court does not detail, the husband sold his solo cosmetic dentistry practice for $580,000. In the purchase agreement, the parties allocated specific amounts to the tangible assets ($126k), patient records ($20k), agreement not to compete ($15k), and “goodwill” ($416k). For purposes of divorce, however, the husband’s BV expert said that the value attributed to the non-compete was “arbitrary” and that the appropriate value was $215,000. The expert reached this amount by applying the Multi-attribute Utility Model (MUM), developed by David Wood, to analyze all of the husband’s personal goodwill attributes, as distinguished from those attributable to the enterprise.

The trial court expressly acknowledged MUM’s utility in determining the fair market value of a professional practice—but said the model was not necessary in this case, due to the arm’s length sale of the business and the assigned value of the non-compete. Accordingly, it determined the husband’s personal goodwill was worth $15k and divided the remainder of the sale proceeds ($565,000) between the parties. The husband appealed, arguing that the trial court should have deferred to his expert’s opinion, but the appellate court disagreed, finding that “it was simply unnecessary to determine the value of the covenant-not-to-compete through the use of a business model pertaining to the hypothetical case of a hypothetical business” when there was evidence of an actual sale.  Further, the appellate court also felt that the court correctly found the $15k non-compete was the husband’s separate property (personal goodwill).

Read the complete case digest of Banchefsky v. Banchefsky, 2010 WL 3527578 (Ohio App., Sept. 9, 2010) including the court opinion at  BVLaw™.