Gaskill v. Robbins, NO. 2005-CA-002088-MR, http://opinions.kycourts.net/coa/2005-ca-002088.pdf, was decided December 8, 2006 in an Opinion Reversing and Remanding which is designated to be published. The custody determination and business value determined by Warren Family Court Judge Margaret Ryan Huddleston were reversed and remanded for a new trial.
The trial court rejected any valuation which excluded any goodwill stating that “there is no reported legal authority for the distinction in goodwill” (personal v. enterprise). “To the contrary, it is generally accepted in Kentucky that the goodwill of a closely held corporation should be assigned value in a dissolution proceeding,” citing to Drake v. Drake, 809 S.W.2d 710 (Ky.App. 1991), Clark v. Clark, 782 S.W.2d 56 (Ky.App. 1990), and Heller v. Heller , 672 S.W.2d 945 (Ky.App. 1984), in support of this proposition.”
The Court of Appeals noted “While we acknowledged that ‘the goodwill contained in a business should be considered when arriving at the value of a practice,’ Id. at 55, citing Heller, 672 S.W.2d at 947 (Emphasis added), we rejected the argument that Heller held that all businesses have goodwill. Id. Consequently, we upheld the trial court’s decision to not include an amount for goodwill in valuing the appellee’s medical practice, concluding that the trial court’s decision was supported by substantial evidence, Id. at 56.”… The question therefore arises as to whether the court gave appropriate consideration to the issue and properly exercised the discretion afforded to it in matters of valuation. See Clark, 782 S.W.2d at 60, citing Platt v. Platt, 728 S.W.2d 542 (Ky.App. 1987). We believe that it did not. As the court was laboring under the misconception that providing a value for goodwill was compulsory in reaching its decision, we believe that it cannot be said that the court exercised its discretion appropriately.”
Here is the meat of the decision on this issue:
“After considering the issue and the facts of this case, we are not inclined to deviate from long-standing precedent by creating a wholesale change of law holding that “personal” and “enterprise” goodwill should be distinguished for purposes of property evaluation in a divorce proceeding – even given that Gaskill’s practice is a sole proprietorship. Issues of stare decisis aside, we believe that “[i]t would be inequitable to hold that the form of the business enterprise can defeat the community’s interest in the professional goodwill. Such a result ignores the contribution made by the nonprofessional spouse to the success of the profession ….” Mitchell v. Mitchell, 732 P.2d 208, 211 (Ariz. 1987).”
The problem in the facts before the Court of Appeals in this case was that the non-professional spouse was actively involved in the business. So, while the contributions of the non-professional spouse may be quite relevant to the facts of this case, they usually are not. I agree with Senior Judge Lewis G. Paisley, sitting as Special Judge, who stated in his Concurring Opinion “I believe she makes a compelling case that ‘personal’ goodwill should not be considered marital property to be divided between the parties. I believe, however, that this is a matter to be addressed to our Supreme Court.”
So now what will retired Justice James E. Keller, counsel for appellant on appeal, do next? He won a reversal and new trial for his client on the child custody issue because the trial court relied on hearsay, and he won on the ruling that the court should have considered introduction of a prior inconsistent statement made by a psychologist to another psychologist. I cannot ever recall seeing a party asking an appellate court to bifurcate issues, but it sure would be nice if he could take the Court of Appeals ruling back to the trial court for the new trial on the custody issue, yet file a motion for discretionary review in the Kentucky Supreme Court on the goodwill issue. The timing would be pure gold in that the Kentucky Supreme Court recently accepted discretionary review in another divorce case involving goodwill.