The Value of Goodwill must not be Based on Post-Marital Efforts

Goodwill may be determined by any method that measures the business’s present value by accounting for some past results and not accounting for any post-marital efforts.

In Foster, husband owned a general medical practice.  In the divorce trial, husband testified the practice had no goodwill on the date of separation. Wife’s expert testified that the practice had $27,000 of goodwill based on an analysis of the business’s financial information from the prior three months.  However, wife’s expert had no opinion on whether husband could obtain that price in a sale.  The divorce court used wife’s valuation and husband’s divorce lawyer appealed.

The First District Court of Appeal affirmed the divorce court and held that, "the value of community goodwill is not necessarily the specified amount of money that a willing buyer would pay for such goodwill. In view of the exigencies that are ordinarily attendant a marriage dissolution the amount obtainable in the marketplace might well be less than the true value of the goodwill. Community goodwill is a portion of the community value of the professional practice as a going concern on the date of the dissolution of the marriage."

In re Marriage of Foster (1974) 42 Cal. App. 3d 577