Bloggers observe: Smith is one other vital, if not iconic case, household attorneys and enterprise valuation specialists ought to know nicely.
Smith v. Smith, 709 S.W.2nd 588 (Tenn. Ct. App. 1985)
Lawyer’s Belongings Might Be Marital Property However Skilled Goodwill is Separate Property
Angelyn Jenkins Smith and Ewing Smith had been married in 1952. Mr. Smith was an legal professional and was first licensed in 1956. He was a 30% companion within the Murfreesboro regulation agency by which his father had earlier been a companion. For the 5 years previous to the events’ divorce, Mr. Smith’s revenue had averaged roughly $96,000 per 12 months.
Mrs. Smith had a level in accounting, however was neither a public accountant nor an authorized public accountant. For a number of years previous to the divorce, she had labored part-time as an accountant, and her revenue for the 5 years previous to the divorce averaged roughly $8700 per 12 months.
Mr. Smith’s curiosity in his regulation apply was not talked about within the trial court docket’s last decree. (The decree additionally failed to say a constructing owned by Mr. Smith collectively together with his sisters, though Mrs. Smith didn’t object to this exclusion. The Court docket of Appeals surmised that the events thought of it separate property, because the curiosity got here from Mr. Smith’s father.)
Mrs. Smith appealed, and contended that the regulation apply ought to have been thought of a part of the marital property. The Court docket of Appeals agreed, and famous {that a} occupation can, certainly, be marital property, and may have been so handled on this case. The Court docket of Appeals famous that sure belongings needs to be included within the valuation of the agency. For instance, bodily belongings akin to furnishings, constructing, and library have a particular worth. Equally, accounts receivable have a worth which needs to be included. The Court docket of Appeals additionally needed to resolve the tougher problem of whether or not the agency’s skilled goodwill may very well be thought of as a part of the worth of the marital property.
Within the case of a regulation agency or different skilled enterprise, the Court docket of Appeals held that the goodwill shouldn’t be thought of as a part of the marital property. It is because it’s indistinguishable from the longer term incomes capability of the skilled. It quantities to popularity, which can’t be bought. The one means that popularity or goodwill might be monetized is sooner or later wage of the actual skilled.
The one proof of the worth of the agency (ignoring its goodwill) was an estimate that Mr. Smith’s share of the accounts receivable had been value $10,000. As well as, Mr. Smith had asserted that he had been taking roughly $8,000 monthly out of the apply, however that this quantity can be smaller because the companions had been altering the tactic of computing the share.
The Court docket of Appeals held that one of the best ways to take the regulation agency’s worth under consideration can be to award Mrs. Smith a portion of the revenue for a restricted time. On these info, the Court docket of Appeals held that she needs to be awarded an extra $1,000 monthly for 2 years.
Mrs. Smith did apparently current some skilled testimony at trial as to the worth of the regulation apply. The Court docket of Appeals famous that the trial court docket refused to permit skilled charges for this testimony. Nonetheless, the opinion is silent as to the character of this testimony or the identify of any skilled witness.
This publish is a part of a sequence, Appreciation of Separate Property: The Forensic Accountant’s Full Employment Act.
To be taught extra, go to When Professionals Divorce in Tennessee: Valuing Professional Practices.
