Goodwill Should be Determined Based Upon a Representative Period of Time

In this Orange County divorce, husband had a law practice that generated income that fluctuated significantly from year-to-year. Wife’s expert calculated the practice’s goodwill by using the year with the highest income.  The divorce court adopted these figures and husband’s Orange County divorce lawyer appealed.

The Fourth District Court of Appeal agreed with husband’s divorce lawyer and reversed by holding that the excess earnings of a business must be based on an evaluation of the husband’s average net income over a reasonably representative period of time, not the highest grossing year.  The Court of Appeal found that if husband’s earning were averaged over the prior four years, goodwill would have been zero.  The Court stated that, “A reasonable trier of fact could not help but conclude the expert chose to use [husband’s] net income from 1995 (one of [husband’s] highest earning years) solely to inflate the value of goodwill.”

In re Marriage of Rosen (2002) 105 Cal. App. 4th 808