The Proper Date for Valuation of a Law Practice is the Date of Separation
In Green, the divorce court valued Husband’s law practice as of the date of separation. Husband’s divorce lawyer appealed and argued that the proper date of valuation should have been a date as near as practicable to the time of trial. Although Husband’s divorce lawyer’s appeal was ultimately denied because of his failure to make a timely request for a statement of decision, the First District Court of Appeal affirmed the divorce court’s use of the date of separation as the proper valuation date.
In so holding, the Court stated that “at any given moment the major assets of most law firms are not capital assets, but those related to the direct rendering of professional services, most particularly accounts receivable and work in progress [and] [f]or this reason we adopt the general rule that in determining the community property interest in law partnerships (including goodwill) in marital dissolution actions, the proper date of valuation is the date of separation of the parties, not a date as near as practicable to the time of trial.”
The Court did note that there are possible exceptions to this rule including situations where a lawyer’s post separation efforts have a minimal impact on any increase in the value of firm, as in large firm settings, or where the formula contained in a partnership agreement for payment upon withdrawal was either an accurate or stipulated method for determining value of partnership interest.
In re Marriage of Green (Green II) (1989) 213 Cal.App.3d 14