Court of Appeals reverses determination that retired Husband’s goodwill from sale of dental practice isn’t subject to equitable distribution

Posted Thursday, March 10th, 2022 by Gregory Forman
Filed under Alimony/Spousal Support, Equitable Distribution/Property Division, Family Court Procedure, Of Interest to Family Court Litigants, Of Interest to Family Law Attorneys, South Carolina Appellate Decisions, South Carolina Specific

The March 9, 2022, Court of Appeals opinion in Bostick v. Bostick, 436 S.C. 43, 872 S.E.2d 859 (Ct.App. 2022), reversed the family court’s determination that goodwill from the sale of a retired dentist’s practice was not subject to equitable distribution.

In Bostick, Wife filed for divorce for a second time in January 2017, having first filed in August 2015. During the approximate time period of the first litigation, Wife removed $246,771 from her retirement accounts and gave them to a church where she pastored.  During the pendency of the second litigation Husband, with Wife’s approval, sold his dental practice to their son for $144,860 in purchased assets and $424,140 in goodwill. 

One week prior to trial Wife’s counsel requested to withdraw out of “professional considerations,” and asked for a continuance to allow Wife to obtain new counsel. The court allowed the attorney to withdraw but denied the continuance request because Wife had engaged several attorneys over the course of the litigation and had failed to comply with various scheduling orders. Wife secured new representation, and her new counsel appeared at trial prepared to proceed.

The parties stipulated to a 50/50 division of marital assets but disputed what assets constituted the marital estate.  The family court determined the goodwill component of the sale of Husband’s dental practice was personal goodwill attributable to Husband’s professional status and did not include it in the marital estate. The family court further found Wife had dissipated the funds in her two retirement accounts and therefore counted $246,771 against her share of the marital estate.

The family court reduced Wife’s alimony award from the $4,000 per month she had been receiving under the temporary order to $500 per month.  Finally, it awarded Husband $25,000 in attorney’s fees, stating Wife could afford to pay the fees and her lack of diligence and cooperation in discovery protracted the litigation.  Wife appealed.

The Court of Appeals first determined the family court did not err in denying Wife a continuance, noting she was ably represented by her trial counsel and her failure to comply with various scheduling orders.  Further the fact that her former counsel asked to be relieved due to “professional considerations” indicated Wife bore some control for her prior attorney being relieved.  It did note that her trial counsel did not need to renew the continuance request to preserve the issue for appeal as the “family court’s denial of the request was final and definitive when it denied the motion and instructed Wife to retain counsel and be ready for trial.”

However, the Court of Appeals reversed the finding that the goodwill portion of the sale of Husband’s dental practice was personal and not subject to equitable distribution.  Moore v. Moore, 414 S.C. 490, 779 S.E.2d 533 (2015) created a distinction between personal goodwill and enterprise goodwill, with personal goodwill being attributed to the reputation of the owner and not subject to equitable distribution and enterprise goodwill being attributable to the intrinsic goodwill of the enterprise above the value of its physical assets (e.g. Coke, McDonald’s, or Apple) and subject to equitable distribution.

The Court of Appeals acknowledged that Husband’s agreement not to compete and to provide up to sixty days of assistance in transitioning the practice had elements of personal goodwill.  However, Husband had previously sold other dental practices and then stopped practicing in the geographic areas where those practices were located.  Further, the son was establishing a new dental practice.  Thus, these goodwill proceeds were more accurately classified as enterprise goodwill and therefore subject to equitable distribution.

The Court of Appeals rejected Husband’s argument that Wife waived her right to claim that the dental practice proceeds were enterprise goodwill when she agreed to the sales terms, as the sales contract did not denominate how the goodwill was to be classified.

The dissent would have affirmed the family court’s goodwill determination.  It noted the purchased assets component was sold by Husband’s professional association while the goodwill component was sold by Husband individually.  It placed greater weight on the agreement to assist with the transition and the five-year covenant not to compete. The dissent would have treated this goodwill as future income to Husband and remanded the issue of alimony for the family court to consider this “income” in its alimony award.

The Court of Appeals further found it appropriate to count the $246,771 Wife removed from retirement accounts as part of her equitable distribution award.  These funds were dissipated in the 2014-16 time period, when the parties were going through marital difficulties and engaging in divorce litigation.  Further these funds went to a church in which she was a pastor and she had access to the church’s funds. Additionally, Wife was evasive in providing documentation about these accounts in discovery and was inconsistent with her testimony about them at trial. The opinion alludes to Wife having an inappropriately close relationship with a co-pastor at the church, who also had access to these funds.

Given these circumstances, the Court of Appeals agreed this was not a situation in which Wife’s donations were merely “foolish or unwise” but represented “bad faith.”  It affirmed the family court’s decision to treat these withdrawals as part of Wife’s equitable distribution award.

The Court of Appeals remanded the issue of alimony back to the family court, largely because it was now awarding Wife half of the goodwill component of Husband’s dental practice.  However, the Court of Appeals agreed that the family court should not have imputed wage income to Husband, noting he was 72 years old, in poor health, and there was no indication Husband intended to practice dentistry.  While these facts weren’t mentioned in the goodwill analysis, they support the Court of Appeals’ reversal on that issue.

I would note that both Wife and the Court of Appeals labeled this issue “alimony reduction,” as though a temporary alimony order creates precedent.  As I’ve previously blogged, it doesn’t. That blog also noted few seemed aware of this.  Apparently, no one in Bostick was.

Wife’s limited success on the alimony issue is unlikely to make her happy on remand.  The major change in the Court of Appeals is a transfer of $212.070 in equitable distribution from Husband to Wife.  Her alimony will not increase and may decrease (perhaps to $0.00) on remand.  A pyrrhic victory.

Because the Court of Appeals changed equitable distribution in Wife’s favor and remanded alimony, it also remanded the attorney fee award.

As there is a dissenting opinion, this case is ripe for certiorari.  How much personal goodwill exists in a promise to provide sixty days of transition assistance and to not complete when one lacks the health or desire to compete strikes me as minimal but not zero. I’m surprised neither opinion tries to divide the goodwill into separate personal and enterprise components, as Moore not only authorized but engaged in this process, but perhaps the trial record doesn’t lend itself to such analysis.

2 thoughts on Court of Appeals reverses determination that retired Husband’s goodwill from sale of dental practice isn’t subject to equitable distribution

  1. Without commenting upon the case itself, this particular distinction between personal and enterprise goodwill, in my opinion, should be irrelevant to the determination of a marital or non marital asset. The asset is acquired during the marriage and is not gift or inheritance. If a person works very hard in a company and generates great personal goodwill within the C suite of the company and receives a large discretionary bonus 1 year, 2 years, etc., should that not be personal goodwill since it had nothing to do with performance. Assets acquired during marriage are marital and this should be no exception. It necessarily will create a huge mess in trials related to proceeds received on the sale of a business, especially if the business name is actually the sellers last name.

    1. There are numerous problems with not treating personal goodwill as a non-marital asset. First, you can’t sell it. Second, it disappears if you die and substantially reduces in value if you stop doing the work that creates personal goodwill. Whatever personal goodwill this dentist had ended when his practice closed.

      Finally, treating personal goodwill as an asset leads to double counting. Take me for example: one might claim my law practice has a lot of value because my reputation brings a steady flow of potential clients with the ability to pay a decent retainer. Does this mean I have a practice with a great deal of value (personal goodwill) or do I make a substantial income due to my personal goodwill? If you equitably divide my personal goodwill but base my support obligation on my goodwill-influenced income, you are treating the same attribute as both asset and income. That isn’t right.

      There’s a reason the Supreme Court affirmed this distinction in Moore. Moore and Bostick create pretty decent guides for distinguishing personal from enterprise goodwill. Given Dr. Bostick was shutting down his dental practice, the goodwill appeared to be primarily, but not solely, enterprise goodwill.

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