The Divorce Court is Not Required to Use the Value Set Forth in a Partnership Agreement

In Marriage of Slater, husband practiced in a medical partnership for more than 20 years. In the divorce, wife’s accountant determined that husband’s interest in the partnership had a substantial goodwill component.  Husband’s divorce lawyer argued that under the partnership, the partnership could buy back husband’s interest at a significantly lesser value. The divorce court correspondingly valued the husband’s interest in the partnership pursuant to the partnership agreement.

The Court of Appeal ruled in favor of wife’s divorce lawyer and reversed the divorce court and explained that, “The agreement was not signed for purposes of the dissolution” and therefore, “The asset being divided in the proceeding was the husband’s interest in the partnership, not his contractual withdrawal rights.”  The Court of Appeal noted that while “the value of the contractual withdrawal right may provide a basis for ascertaining the value of the community interest … it does not preclude a consideration of other facts.”

However, the Court of Appeal also found that wife’s accountant improperly calculated goodwill because wife’s accountant “erroneously included some of the husband’s post-dissolutions earnings.”  In so holding, the Court of Appeal agreed with husband’s divorce lawyer and reiterated the bright-line rule that “goodwill may not be valued by any method that takes into account the post-marital efforts of either spouse but that a proper means of arriving at the value of such goodwill contemplates any legitimate method of evaluation that measures its present value by taking into account some past result.”

In re Marriage of Slater (1979) 100 Cal.App.3d 241