Yoon v. Yoon – Divorce – Division of Marital Property
Yoon v. Yoon, 711 N.E.2d 1265 (Ind. 1999).
NATURE OF THE CASE: This case involved a dispute over the good will value of a business in the context of a division of marital property.
FACTS: Nam and Yoon’s marriage was dissolved in 1996. Nam accepted custody of the two children and Yoon was ordered to pay child support. In the division of marital property, the court divided the marital property and Yoon’s medical practice and awarded 55.4% to Nam and 44.6 to Yoon. This appeal resulted.
ISSUE: 1) If goodwill is personal to the owner in a professional business, is that goodwill divisible upon dissolution of the marriage? 2) What must a court determine in order to include the goodwill of a self-employed business or professional practice in a marital estate? 3) If the court concludes that the goodwill is attributable to the individual, how must the court characterize that goodwill?
RULE OF LAW: 1) No. If goodwill is personal to the professional business owner that goodwill is not divisible upon dissolution of the marriage. 2) Before including the goodwill of a self-employed business or professional practice in a marital estate, a court must determine that the goodwill is attributable to the business and not to the owner as an individual. 3) If the goodwill is attributable to the individual, the goodwill is not a divisible asset and is properly considered only as future earning capacity that may affect the relative property division.
HOLDING AND DECISION: Goodwill in a professional practice may be attributable to the business enterprise itself by virtue of its existing arrangements with suppliers, customers, or others and its anticipated future customer base due to factors attributable to the business (enterprise goodwill). It may also be attributable to the owner’s personal skill, training or reputation (personal goodwill).
In this case we are interested in the personal goodwill which depends on the continued presence of a particular individual. Any value that attaches to a business as a result of personal goodwill represents merely the future earning capacity of the individual and is not divisible.
Our law has determined that relative earning power is not a divisible asset because it is not property, but it may be considered in determining the percentage of property to be given each party in a divorce. However, this court recognizes that even a professional practice has an enterprise goodwill component. Yoon argues that attributing any value to goodwill for a professional practice inevitably triggers a battle of the experts over the choice of valuation methods and that the difficulty in predicting the outcome of a valuation dispute substantially increases the time and expense of resolving the issues before the court. We must reject this argument because it is for the legislature to determine that such endeavors are inefficient.
As for the valuation of the enterprise goodwill, we do not agree with Yoon’s analysis. Yoon contends that a portion of his large gross revenue is attributable to his hard work and long hours. That may be true but it is not dispositive of this issue. If Nam’s expert is correct that there is value in the patient base that is roughly proportional to the gross receipts, perhaps some of that value of the enhanced gross receipts inheres in the business even if it was generated by individual effort. The trial record is silent on this matter. Nor is there any discussion about patient return rates with respect to continued treatment and how that affects value. The court must determine the portion of value in Yoon’s business that is attributable to the business without the professional’s continued participation. There was no evidence that the business itself has goodwill associated with it and Nam’s expert declined to express a value that a willing buyer might pay for the business without Yoon. There was no evidence that Yoon had a system of patient referral that would remain with the business.
DISPOSITION: Remanded for further proceedings.
DISSENT: The analysis in Porter convinces me that much of the personal goodwill is distinct from future earning capacity. The value of the personal goodwill of Yoon’s practice would be substantially less than that found by the trial court if he were just beginning practice or if he were starting a new practice. These differences would be attributable to value in the practice developed during the marriage and should be considered a marital asset.