Cardiologist Practice Valuation Can’t Include Goodwill
Tennessee business valuation law case summary – Cardiologist’s practice. Tennessee divorce and family law from the Tennessee Court of Appeals.
Cunningham v. Cunningham I – 2000- Tennessee Divorce – Valuation and Division of Medical Practice
This case involves the appeal involves the Cunninghams’ divorce after seven years of marriage. Dr. Louis Cunningham (“Dr. Cunningham”) and Cheryl Cheatham Cunningham (“Ms. Cunningham”) were married on October 20, 1990, and separated on July 15, 1995. Ms. Cunningham was awarded a divorce on the grounds of inappropriate marital conduct.
Dr. Cunningham is a board certified cardiologist and has practiced medicine since 1979. He is the sole practitioner at the Mid-South Heart Center, Inc. (“MSHC”), a professional corporation. The trial court awarded Ms. Cunningham her profit-sharing in MSHC (as she was at a time its business administrator) and one-half of Dr. Cunningham’s profit-sharing in the practice. Dr. Cunningham was awarded the remainder of the marital assets, including MSHC and its attached goodwill.
Both Dr. Cunningham and Ms. Cunningham retained experts to place a value on the medical practice. Dr. Cunningham’s expert testified that the value of the practice as of April 30, 1998, was $546,710.00, while Ms. Cunningham’s expert valued MSHC at $1,059,947.00 as of April 30, 1998, of which $417,083.00 was attributable to goodwill. The trial court found that the value of MSHC was $1,300,000.00.
The Tennessee Court of Appeals acknowledged that in a professional practice—as well as a sole proprietorship—the success of the business is dependent on the owner. The court went on to say that the physical and tangible assets of a business have ascertainable value; however, the goodwill of a business, although essentially a thing of value, does not have a property interest separate from the business itself. Goodwill, the court explained, is in essence, the reputation of the professional practice.
Accordingly, the court of appeals determined that the evidence weighed against the trial judge’s finding that the value of MSHC was $1,300,000.00. Ms. Cunningham’s expert testified that the value of MSHC was $1,059,947.00, and attributed $417,083.00 of that amount to the goodwill of the professional practice. By the court’s calculations, the value placed on MSHC by Ms. Cunningham’s expert—without goodwill—was $624,864.00. Dr. Cunningham’s expert testified that the value of the professional practice was $546,710.00. That expert did not factor goodwill into his valuation either, and as a result, $546,710.00 reflects the value Dr. Cunningham’s expert placed just on the professional practice.
The court of appeals reversed and sent the valuation issue back to the trial court for an assignment of value to MSHC within the range of values supported by the evidence, which was between $546,710.00 and $624,864.00.
Cunningham v Cunningham, No. W1999-02054-COA-R3-CV (Tenn. Ct. App., 2000).
See original opinion for exact language. Legal citations omitted.
To learn more about the division and valuation of professional practices in divorce, see When Professionals Divorce in Tennessee: Valuing Professional Practices.
Miles Mason, Sr. JD, CPA handles complex divorce matters including business valuations and forensic accounting issues. View his professional biography listing books and articles published on business valuation and forensic accounting and seminars presented to lawyers, judges, business valuation experts, and forensic accountants. Miles Mason, Sr. authored The Forensic Accounting Deskbook: A Practical Guide to Financial Investigation and Analysis for Family Lawyers, published by the American Bar Association. The Miles Mason Family Law Group, PLC’s offices are located in Memphis, Tennessee and serves West Tennessee and Nashville.
