Value of Dental Practice Can’t Include Goodwill in TN Divorce
Tennessee law case summary on value of dental practice in divorce and family law from the Court of Appeals.
Janice Hartline v. Robert Stephen Hartline – Tennessee divorce business valuation, dental practice.
The husband and wife were married in 1986 and had been married for 25 years at the time of their Tennessee divorce. At the time of their divorce, the husband was 63, and the wife was 51. Each had one child from a previous marriage, and their son was 19 and in college at the time of the divorce.
The husband was a dentist in Cleveland, Tennessee, where he had a solo practice for over 30 years. The two met when the wife began working for him as a dental assistant and office manager. She continued working for the dental practice until about 2002. The wife made some allegations of abuse, and also alleged that the husband had an inappropriate relationship with an employee. The husband denied these allegations, but did admit to engaging in sexual relations with prostitutes on two occasions.
The husband offered evidence that the wife had engaged in an inappropriate relationship for ten years. That man testified as to an extramarital affair, but the wife denied any sexual relationship. During the marriage, the wife had been treated for depression and psychotic features. The wife’s psychiatrist testified that she was not capable of employment.
The wife filed for divorce in 2011 and alleged irreconcilable differences and inappropriate marital conduct. The husband counter claimed for adultery and abandonment of the marriage. In 2012, the trial court in Bradley County entered an order dividing the assets and awarding the wife alimony.
The husband filed an appeal to the Tennessee Court of Appeals, and many of the issues on appeal involved the valuation of the dental practice. In particular, he argued that the trial court should not have included the goodwill as part of the valuation of the practice. He also argued that the wife’s expert witness should not have been considered an expert evaluator of a professional practice.
The witness, Corinne Henderson, had been a CPA for 18 years and was a Certified Evaluation Analyst. The Court of Appeals first held that she was qualified to testify as an expert witness, although the court was not obligated to accept her findings.
As to the valuation of the practice, the court then considered whether the goodwill of the business should have been included. The trial court had concluded that the value of the practice was $468,000, minus debt of $165,720, for a net value of $302,280.
In reaching this valuation, the expert witness had used the “Market Approach – Guideline Transaction Method,” in which the value was based on annual revenue times a multiplier. She did note that this would be the value as a going concern. The court of appeals held that this implicitly included the personal goodwill of the practitioner, as well as the business goodwill of the practice.
The court noted earlier precedents in which it noted that the goodwill of a sole practitioner is really indistinguishable from his future earning capacity. For this reason, the court held that it was improper to consider this valuation. It remanded the case for consideration of the business value without regard to the goodwill of the business. The court also remanded with respect to other property issues.
No. E2012-02593-COA-R3-CV (Tenn. Ct. App. Jan. 13, 2014).
See original opinion for exact language. Legal citations omitted.
For more information, see Valuing Professional Practices in Tennessee Divorce. Memphis divorce attorney, Miles Mason, Sr., practices family law exclusively and is founder of the Miles Mason Family Law Group, PLC. Buy The Tennessee Divorce Client’s Handbook: What Every Divorcing Spouse Needs to Know, available on Amazon and Kindle. To schedule your confidential consultation, call us today at (901) 683-1850.
