Summary
The Wisconsin Supreme Court reviewed a divorce judgment awarding Tracy McReath a property-equalization payment and maintenance. The court held that salable professional goodwill associated with Tim McReath's orthodontic practice was properly included in the marital estate, including goodwill characterized as personal goodwill. It also held that using the practice's earnings to calculate maintenance did not impermissibly double count the goodwill.
Topics
Practice areas
Questions Presented
- Whether the entire value of salable professional goodwill attendant to Tim's interest in Orthodontic Specialists could be included as divisible property in the marital estate.
- Whether including the professional goodwill in the marital estate and using Tim's expected future earnings from the practice to calculate maintenance constituted impermissible double counting.
Holdings
- When valuing a business interest that is part of the marital estate in a divorce, the circuit court shall include the value of salable professional goodwill attendant to that business interest. The court need not separately exclude goodwill characterized as personal goodwill when that goodwill is salable.
- The circuit court did not impermissibly double count the professional goodwill by including it in the marital estate and basing maintenance on Tim's expected future earnings from the practice.
Key quotations
“when valuing a business interest that is part of the marital estate for purposes of divorce, a circuit court shall include the value of the salable professional goodwill attendant to the business interest.” (¶ 35)
“In short, when analyzing whether there has been double counting, the focus should be on fairness, not rigid double-counting rules.” (¶ 54)
“We conclude the entire value of salable professional goodwill was properly counted as divisible property in the marital estate. Moreover, we conclude that the circuit court did not double count the professional goodwill from Orthodontic Specialists in the maintenance award.” (¶ 62)
Factual background
Timothy and Tracy McReath married in 1988 and had three children. During the marriage, Tim obtained dental and orthodontic degrees, purchased the Baraboo and Portage locations of Orthodontic Specialists, and operated the practice successfully; approximately 90 percent of the purchase price was attributed to goodwill-related components, including Dr. Grady's name, a noncompete agreement, and transitional services. Tracy largely worked as a homemaker and primary caretaker, contributed to Tim's education and earning capacity, and later performed limited clerical work for the practice. The circuit court valued the practice at $1,058,000, awarded Tracy an equalization payment, and based maintenance in part on Tim's adjusted annual earning capacity from the practice.
Procedural history
Tracy McReath filed for divorce in Sauk County Circuit Court on May 16, 2007. The circuit court valued Orthodontic Specialists at $1,058,000, included the practice's salable professional goodwill in the marital estate, ordered a $796,720 equalization payment to Tracy, and awarded Tracy $16,000 per month in maintenance for 20 years. The court of appeals affirmed, and the supreme court affirmed the court of appeals.