2010 WI App 101
court of appeals of
Complete Title of Case:
†Petition for Review filed
In re the marriage of:
Tracy J. McReath,
Timothy J. McReath,
July 29, 2010
Submitted on Briefs:
January 22, 2010
Dykman, P.J., Vergeront and Lundsten, JJ.
On behalf of the respondent-appellant, the cause was
submitted on the briefs of Andrew W. Erlandson of Hurley,
On behalf of the petitioner-respondent, the cause was submitted on the brief of Stephen C. Beilke of Murphy Desmond S.C., Madison.
2010 WI App 101
COURT OF APPEALS
DATED AND FILED
July 29, 2010
A. John Voelker
Acting Clerk of Court of Appeals
This opinion is subject to further editing. If published, the official version will appear in the bound volume of the Official Reports.
A party may file with the Supreme Court a petition to review an adverse decision by the Court of Appeals. See Wis. Stat. § 808.10 and Rule 809.62.
IN COURT OF APPEALS
In re the marriage of:
Tracy J. McReath,
Timothy J. McReath,
from a judgment of the circuit court for
¶1 LUNDSTEN, J. In this divorce case, we address whether there is or should be a rule that excludes the value of salable professional goodwill from divisible property. The husband, Tim, is a dentist with an orthodontic practice that he acquired early on in this long-term marriage. Tim argues that the circuit court erred as a matter of law when it treated the professional goodwill portion of the valuation of his practice as divisible property. Tim contends that although he could sell his practice for just over one million dollars, most of that amount is attributable to non-divisible professional goodwill. It follows, according to Tim, that the circuit court applied an incorrect legal standard when it treated the full $1,058,000 valuation as an amount subject to division. We disagree. There is no existing rule that requires the exclusion of salable professional goodwill from divisible property, and we decline to adopt a blanket rule to that effect. Accordingly, the circuit court did not err as a matter of law. Because Tim’s challenge on appeal hinges on this single issue, we affirm the circuit court.
¶2 In deciding this case, we enter an area that has been “hotly debated”
in jurisdictions across the country for at least thirty years. The topic has aptly been characterized as a
“quagmire for courts.” We do not, in this decision, pull
¶3 Tim and Tracy McReath were married in 1988 and their divorce
was final in 2008. They have three
children. Tim is a dentist with a
specialty in orthodontia. He is the sole
owner of “Orthodontic Specialists,” with offices in Baraboo and
¶4 At the divorce trial, Tim and Tracy disputed the value of
¶5 It is undisputed that the goodwill component of the valuation is the difference between the full valuation, $1,058,000, and the value of the tangible assets, $247,000. Thus, total goodwill, both “professional” and “corporate,” is $811,000. Although there was no evidence identifying some specific portion of this total goodwill as professional goodwill, the circuit court assumed that a significant portion was professional goodwill.
¶6 It is also undisputed that a purchaser paying the $1,058,000 price would insist that Tim agree not to compete with the purchaser, via a non-compete agreement. For purposes of this decision, we adopt Tim’s assumption that a non-compete agreement would be a means of transferring some portion of Tim’s professional goodwill.
¶7 When addressing property division, the circuit court included
the full $1,058,000 valuation as divisible property. As a result,
¶8 Our attention here is directed at the goodwill component of the valuation of Tim’s orthodontic practice. The court found that Tim could sell his practice for $1,058,000. This $1,058,000 valuation is comprised of three components: the value of the tangible assets, the value of “corporate goodwill,” and the value of “professional goodwill.” Thus, there is no dispute that the professional goodwill at issue here is salable.
¶9 What is disputed here is whether the circuit court erred as a matter of law by treating the value of Tim’s salable professional goodwill as divisible property.
¶10 Tim argues that, under controlling case law, professional goodwill is not a divisible asset, even if it is salable. Tim reasons that professional goodwill should never be divisible because it is inextricably linked to earnings. According to Tim, it follows that it is unfair to divide the value of his professional goodwill and then also base maintenance payments, in part, on the earnings that flow from that same professional goodwill, something referred to in the case law as “double counting.”
¶12 We begin our discussion with some preliminary clarifications and observations, and then address and reject Tim’s arguments.
¶13 Neither of the parties provides a clear definition of either
“corporate goodwill” or “professional goodwill.” This is explained in large part by a lack of
Legal writers have had great difficulty in defining the concept of “good will.”
In its broadest sense the intangible asset called good will may be said to be reputation; however, a better description would probably be that element of value “which inheres in the fixed and favorable consideration of customers arising from an established and well-conducted business.”
No rigid and unvarying rule for the determination of the value of good will has been laid down by the courts; therefore, each case must be determined on its own facts and circumstances.
¶14 Similarly, Tim’s discussion of “professional goodwill” is
unsatisfying because the case he relies on, Holbrook v. Holbrook, 103
¶15 It appears to us that if, as Tim proposes, all professional goodwill is to be excluded from a business valuation for purposes of identifying divisible property, circuit courts would need a working definition of just what it is they are supposed to exclude. Many questions come to mind. Are corporate goodwill and professional goodwill truly distinct, or do they overlap? How does a monopoly in a geographic area—like Tim’s—affect determinations of corporate goodwill and professional goodwill? Is such a monopoly a component of corporate goodwill or professional goodwill? If monopoly status is a component of corporate goodwill, how does one go about differentiating the business value attributable to monopoly status from the business value owing to Tim’s professional skills and reputation?
¶16 As we shall see, one particular definitional issue has caused considerable ongoing confusion, namely, the assumption on the part of some courts that professional goodwill, by definition, is not salable. This is plainly not true, as the record before us demonstrates.
¶17 Although Tim sometimes seems to take the position that
professional goodwill is not divisible because it is not salable, he ultimately
agrees that he is challenging the inclusion of salable professional
goodwill. Tim states: “[
¶18 This brings us to another matter in need of clarification, non-compete agreements. One of the primary mechanisms through which professional goodwill is sold is a non-compete agreement. In this case, Tim’s and Tracy’s experts agreed that no reasonable buyer would purchase Tim’s practice without an agreement preventing Tim from competing in the two communities where Tim’s offices are located. There is no dispute that the hypothetical willing buyers, envisioned by all of the experts, would demand a non-compete agreement and no serious dispute that, if a sale occurred, the non-compete aspect of the sale would be a mechanism for the transfer of some portion of Tim’s professional goodwill to the buyer.
¶19 Thus, looking at the total value of the orthodontic practice
accepted by the circuit court ($1,058,000), there is no serious dispute that a
significant, but unspecified, portion of this amount is attributable to salable
professional goodwill. In
¶20 We now turn our attention to Tim’s two primary arguments. First, he argues that existing case law prohibits treating any of his professional goodwill, salable or not, as divisible property. Second, he implicitly argues that, even if existing case law does not compel the result, we should now hold, based on “double counting,” that none of his professional goodwill is divisible. We address and reject each argument.
A. Existing Case Law Does Not Contain A Prohibition On Treating
Salable Professional Goodwill As Divisible Property
¶21 Tim places primary reliance on two cases, Holbrook, 103
¶22 Tim points to the following statement in Holbrook: “We are not persuaded that the concept of
professional goodwill as a divisible marital asset should be adopted in
¶23 The disputed goodwill in Holbrook was a lawyer’s goodwill in
a law firm. We explained that this
goodwill was a function of the lawyer’s contribution to the good reputation of
his law firm and the corresponding added value to that firm. See
id. We concluded that this
“asset” was not divisible property because it was not salable.
Like an educational degree, a partner’s theoretical share of a law firm’s goodwill cannot be exchanged on an open market: it cannot be assigned, sold, transferred, conveyed or pledged. Although we recognize the factual distinction between a degree-holder and a partner or shareholder in a law firm, ... [in] both cases, the “asset” involved is not salable and has computable value to the individual only to the extent that it promises increased future earnings.
There is a disturbing inequity in compelling a professional practitioner to pay a spouse a share of intangible assets at a judicially determined value that could not be realized by a sale or another method of liquidating value.
¶24 Thus, the key to Holbrook is understanding that it addresses professional goodwill that cannot be sold. At most, Holbrook supports the proposition that non-salable professional goodwill is not a divisible asset. Holbrook does not contain a blanket holding that professional goodwill may never be treated as divisible property. In Holbrook, we did not, as we do here, address a situation in which the evidence and fact finding show that some portion of professional goodwill is salable.
¶25 We turn our attention to our later Peerenboom decision. Tim interprets Peerenboom as holding that divisible goodwill may never include any value attributable to a “professional’s skills and services,” which he equates to professional goodwill. We disagree.
¶26 In Peerenboom, we distinguished the solo dental practice before us
from the law firm in Holbrook, noting that the solo
dentist, unlike the law firm lawyer, was not ethically or contractually
prohibited from selling his “interest” in his business. Peerenboom, 147
[C]are must be taken to ensure that the goodwill is indeed a separate asset, rather than the established employment or earning capacity of the professional. If [goodwill] is not established as a separate asset, but merely a measure of earning capacity, its value would then improperly be taken into consideration more than once.
¶27 Tim relies on the following statement in Peerenboom: “[T]o the extent that the evidence shows that
the goodwill exists, is marketable, and that its value is something over and
above the value of the practice’s assets and
the professional’s skills and services, it may be included as an asset in
the marital estate and be subject to division.”
¶28 Accordingly, neither Holbrook nor Peerenboom resolves whether salable professional goodwill may be treated as divisible property.
¶29 Before moving on, we pause briefly to observe that our review
of case law and commentary in this area reveals that the failure to distinguish
salable from non-salable professional goodwill is commonplace. Typical is the discussion of professional
goodwill found in a comment in the
¶30 Even commentary that recognizes a difference between salable
and non-salable professional goodwill does not necessarily hit the mark. For example, in an article found in the
Journal of the American Academy of Matrimonial Lawyers, the author makes a
promising start when he states that “realizable” (i.e., salable) goodwill
should be divisible because it can be converted to cash by selling the business
in the open market. See Christopher A. Tiso, Present
Positions on Professional Goodwill: More
Focus or Simply More Hocus Pocus?, 20 J.
Am. Acad. Matrimonial Law. 51, at 53-54 (2006). Even more promising, the author goes on to
note “the legitimate double-dipping concerns of counting the
goodwill—especially the goodwill attaching personally to the professional—both
as a marital asset subject to division and as a source of future earnings to
pay alimony and support.”
¶31 Regardless of Holbrook, Peerenboom, and other non-binding authorities, it is apparent that Tim takes the position that we should hold that professional goodwill is never divisible property. Thus, we turn our attention to Tim’s central argument: unfair double counting.
B. Double Counting
¶32 Most property that is subject to division in a divorce proceeding is not intertwined with earnings. Real estate and cars, for example, normally have no relationship to the earnings of either spouse. This case is difficult because the disputed property subject to division is Tim’s dental practice, which is both salable property and the primary source of Tim’s earnings. As Tim explains, in this situation, if the portion of the value of the practice attributable to professional goodwill is included as divisible property, a sort of “double counting” occurs if the full value of the practice is treated as a divisible asset and, then, maintenance is based on earnings, which, in turn, depend in large part on the same professional goodwill.
¶33 Tim’s solution to this “double counting” issue is to exclude
all professional goodwill, regardless whether it is salable, from property
¶34 In the sections below, we first explain why we reject Tim’s
proposal. We then explain why we decline
to adopt a rule directing courts to deal with this issue by making an
adjustment to maintenance. We then turn
1. Tim’s Proposal
¶35 We understand Tim’s primary argument to be based on the
prospect of “double counting.” Tim
asserts that it is unfair to treat the value of his professional goodwill as a
divisible asset, to give
¶36 We agree with Tim that if he continues in his practice there will be some “double counting.” But, for several reasons, we decline to adopt Tim’s proposed blanket prohibition on including salable professional goodwill as divisible property.
¶37 First and foremost, if Tim’s blanket prohibition is adopted, unfairness will plainly be the result in some circumstances. For example, suppose a divorcing dentist with a successful practice, and substantial salable professional goodwill, is also planning to retire in about a year. Under Tim’s proposal, the spouse of that dentist would not share in the full value of the business, a value that will be realized just a year after the divorce. At the same time, maintenance would be set with the knowledge that retirement is imminent. To make this example more concrete, suppose the dentist Tim purchased his practice from was retiring according to a longstanding plan and was also recently divorced. Tim testified that he paid $930,000 for the practice, with about $830,000 of that amount attributable to professional goodwill and the remaining $100,000 attributable to tangible assets and corporate goodwill. If the experts in this hypothetical divorce proceeding back in the 1990’s estimated the tangible assets and corporate goodwill in keeping with the sale to Tim, and the judge applied Tim’s proposed rule, the dentist’s wife would have received $50,000 as her share of the asset and the dentist would later net $880,000 as his share of the same asset (Tim’s $930,000 purchase price less $50,000 to the ex-spouse leaves $880,000 for the dentist).
¶38 Similarly, suppose a maintenance-paying dentist, in his or her prime earning years, dies unexpectedly shortly after a divorce. If the dental practice was not divided at its full value, including salable professional goodwill, the non-dentist spouse would lose out in a manner similar to the ex-spouse of the retiring dentist discussed above.
¶39 For that matter, Tim’s proposal would prohibit including salable professional goodwill even when no maintenance is ordered. In Tim’s view, professional goodwill is, simply, a non-divisible asset. Thus, even when there is no potential for double counting, the non-professional spouse would lose out. These examples demonstrate the unfairness of a blanket prohibition on including salable professional goodwill as divisible property.
¶40 We note that one
¶41 Returning to Tim’s proposed blanket exclusion of salable professional goodwill from divisible property, the second reason we reject it is because we have no basis on which to conclude that “double counting” is a significant problem. More to the point, we have no reason to think that completely excluding the value of salable professional goodwill from divisible assets makes economic sense. Taking this case as an example, acknowledging that some degree of “double counting” may occur is not the same as understanding the dollar value relationship between the amount Tracy received in the property division attributable to salable professional goodwill and the portion of her maintenance payments attributable to professional goodwill.
¶42 Here, Tim did not, and perhaps could not, have presented expert
testimony explaining why it would be necessary to exclude the entire value of salable professional
goodwill in order to avoid “double counting.”
Suppose, as Tim surmises based on the testimony of his expert, that 95%
of the total salable goodwill is attributable to professional goodwill. If the circuit court had accepted this
percentage allocation and then applied Tim’s proposed rule to the $1,058,000
¶43 The third reason we decline to adopt Tim’s proposal again
highlights the lack of economic information before us. Tim agrees that corporate goodwill is
divisible. His unspoken assumption
appears to be that dividing the value of corporate
goodwill is permissible because it does not lead to “double counting.” We question this assumption. As with salable professional goodwill, it
appears to us that a business owner’s ongoing earning capacity is enhanced by
salable corporate goodwill. Businesses
with substantial corporate goodwill, like those with substantial professional
goodwill, produce greater profits than similar businesses with less
goodwill. Since it is settled law in
¶44 We pause here to comment on Tim’s contention that if the value
of professional goodwill can only be realized by means of a non-compete
agreement, then such value is not divisible.
Why, we ask, does this mechanism for transferring professional goodwill
suggest that the professional goodwill is not divisible? Tim does not explain. If Tim did sell his practice shortly after
this divorce, with a non-compete agreement, the result might be that Tim’s
earnings would decline. If that happens,
the practice would be sold as anticipated in the property division, and
maintenance can be revisited to take into account the changed circumstances. This is not the puzzling scenario from a
double counting standpoint. Rather,
double counting, in some unknown amount, would occur only if Tim does not sell. In that event,
¶45 Tim’s reliance on non-compete case law is similarly
unavailing. Tim cites Williams
v. Williams, 667 So. 2d 915 (Fla. Dist. Ct. App. 1996), as an example
of a case that treats the need for a non-compete agreement as a reason to
exclude related professional goodwill from divisible property. But Williams is an unsatisfying read to
say the least. The
¶46 Finally, we note that professional goodwill is sometimes sold by means other than a non-compete agreement. For example, part of the agreement Tim had with the dentist that he purchased from required that dentist “to introduce [Tim] to ... existing patients.” In this manner, the dentist with established professional goodwill could vouch for Tim and, effectively, transfer some of that professional goodwill to Tim. What reason would Tim give for excluding the value of professional goodwill transferred in this manner? In any event, we fail to see why the mechanism for transferring professional goodwill matters or what Tim’s non-compete discussion adds to his direct “double counting” argument.
2. The Alternative Of Adjusting Maintenance
¶47 An alternative approach suggested by Tim’s double counting argument is to deal with the issue when calculating maintenance. Circuit courts could include salable professional goodwill as divisible property, but then make a compensating downward adjustment in maintenance. This approach would avoid the problem we have described in the examples involving the retiring dentist and the dentist who dies unexpectedly. And, obviously, it deals with the situation in which no maintenance is ordered. Although this approach looks to have theoretical appeal, we do not require its use here for two reasons.
¶48 First, Tim does not make this argument, and we do not have the benefit of adversarial briefing on the issue.
¶49 Second, we are unable to give the circuit court guidance on how
to apply this approach. That is, if we
remanded this matter to the circuit court to revisit maintenance in order to
deal with the double counting issue, we could not give the court helpful
direction on how it might go about determining an appropriate reduction in
maintenance. As we explain above, we do
not know how, or even if, a particular reduction in maintenance can be
calculated that would appropriately
offset the amount
¶50 What remains is the approach advocated by
¶51 For the reasons explained, we affirm the circuit court.
By the Court.—Judgment affirmed.
¶52 DYKMAN, P.J. (dissenting). I read the majority opinion as acknowledging that the trial court double-counted the value of Tim’s orthodontic practice by valuing goodwill (of whatever type) which at least in some part is a measure of Tim’s earning capacity, and then used Tim’s future earning capacity to set maintenance. But because the record is insufficient to identify a non-divisible portion of Tim’s practice, the majority affirms.
¶53 Part of the problem is that there is no double-counting rule. Cook v. Cook, 208 Wis. 2d 166, 180, 560 N.W.2d 246 (1997), explains that the “rule” is not inflexible, but instead “serves to warn parties, counsel and the courts to avoid unfairness by carefully considering the division of income-producing and non-income-producing assets and the probable effects of that division on the need for maintenance and the availability of income to both parents for child support.” There are a multitude of double-counting rules, but each is wholly dependent on its facts. Thus, if the facts in an asserted double-counting divorce case are identical to the facts in one of the several published double-counting cases, a predictable result can be obtained. Otherwise, the teaching from Cook is that the result where double-counting is present must be fair.
¶54 So, I disagree that the problem in this case is a lack of expert testimony. I think it is clear that the trial court divided the value of Tim’s practice and also used the income from that practice to set maintenance. I think the difficulty is that, though the trial court carefully examined the testimony, made credibility determinations, and considered a variety of factors in setting maintenance, it did not specifically consider the Cook double-counting “fairness” requirement to address the double-counting problem. To do this, the trial court did not have to make a finding as to what portion of the value of Tim’s practice was divisible and which non-divisible. I believe, and I think the majority does too, that there is some of each in the value accepted by the trial court. But for me, an exact finding as to which is which is not necessary. It may be that if the majority were to agree with me, the resulting property division and maintenance award would not change on remand. Or it might. But the parties and any reviewing court could see the trial court’s reasoning in this respect, and the pole star of appellate review of discretionary decisions is whether the trial court used a rational process to reach a reasonable conclusion. See City of Stoughton v. Thomasson Lumber Co., 2004 WI App 6, ¶38, 269 Wis. 2d 339, 675 N.W.2d 487 (WI App 2003). And, since this is an opinion designated for publication, practitioners and trial courts would, if the majority remanded, include a Cook analysis in potential double-counting cases in the future. But because I would remand and the majority affirms, I can only respectfully dissent.
Kelly Schroeder, Comment, Fair and
Equitable Distribution of Goodwill in an
 Christopher A. Tiso, Present Positions on Professional Goodwill: More Focus or Simply More Hocus Pocus?, 20 J. Am. Acad. Matrimonial Law. 51, 51 (2006).
 The circuit court rejected Tim’s expert’s valuation ($415,000) for several reasons. For example, the circuit court observed that Tim’s expert’s valuation was inconsistent both with the fact that Tim paid about $900,000 for the practice in the 1990’s and with the practice’s consistently high earnings.
 We follow the parties’ lead and use the terms “professional goodwill” and “corporate goodwill.” We note that “professional goodwill” is also commonly referred to as “personal goodwill.” Also, “corporate goodwill” goes by many names, including “business goodwill,” “going concern value,” “commercial goodwill,” and “enterprise goodwill.”
asserts that the circuit court found, “without an evidentiary or logical basis
– that all of the goodwill associated
with Orthodontic Specialists was corporate goodwill.” We disagree with this characterization. On the page of the transcript that Tim relies
on, the circuit court merely recites that one of
term “double counting,” or a similar term, appears in many published
cases. We used the term “double
counting” in Holbrook v. Holbrook, 103
fact demonstrating the existence of goodwill in Tim’s practice is its
“conversion ratio,” the percentage of new potential patients who visit and then
become actual patients. In Tim’s
practice, conversion is 75%, compared with an industry average of about
50%. Tim’s counsel attempted to
establish that this high conversion ratio was a product of Tim’s skill and
reputation and, therefore, Tim’s professional goodwill. But another explanation given by
 Tim testified that he paid about $930,000 for the practice and that 89% of this amount (about $830,000) was for “professional goodwill,” with the remainder attributable to tangible assets and “corporate goodwill.”
even this aspect of Holbrook, 103
our decision in Lewis v. Lewis, 113
 We calculate the $385,225 reduction by taking the circuit court’s finding that tangible assets were worth $247,000 and treating the remainder of the valuation ($811,000) as goodwill, with 95% of that remainder attributable to professional goodwill. This calculation attributes $770,450 to professional goodwill and, thus, would lead to the exclusion of this amount from the divisible assets. Although the circuit court reasonably rejected Tim’s expert’s opinion that such a high percentage was fully attributable to professional goodwill, the literature on this topic suggests to us that, even if this 95% estimate is high, the primary salable asset of many professional practices is, nonetheless, professional goodwill that is transferred by means of a non-compete agreement.
a discussion of the relevant considerations in adjusting maintenance, we refer
the reader to Rohde-Giovanni v. Baumgart, 2004 WI 27, ¶32 n.5, 269 Wis. 2d
598, 676 N.W.2d 452 (“[B]oth support and fairness considerations must be
weighed when determining whether to modify a maintenance award.”). We also note here that Tim mistakenly assumes
that if he sells his practice, and then moves the court for a reduction in
maintenance because of his reduced earnings, the court will reject his request
and “his maintenance obligations would remain unchanged.” Tim posits that if he sells his practice and
then seeks a reduction in maintenance, Tracy will take one of two
positions: (1) she will oppose the
requested maintenance adjustment as inequitable because Tim voluntarily reduced
his earning capacity “via [a non-compete sale] and received valuable
consideration for doing so,” or (2) she will argue that, if Tim’s maintenance
obligations are adjusted downward, she should receive one-half the
consideration Tim received for the non-compete agreement. It is true that