Sole issue was value of chiropractic practice
The husband in the Helfers’ divorce was the sole proprietor of a chiropractic practice. At trial, his expert used a straight capitalization of earnings method (income approach) to reach a $41,000 fair market value for the practice. His report stated that enterprise or other intangible value was a relevant consideration, but did not analyze it or assign it a value—not even zero.
The wife’s expert used the capitalization of excess earnings method (cost approach) to value the husband’s practice at $388,000. His report also did not account for or attribute a dollar amount to enterprise goodwill. After discussing the differences between the two valuations and under the circumstances of the case, the trial court found the capitalization of earnings approach more appropriate and adopted the husband’s $41,000 fair market value.
The wife appealed, claiming that it was error to adopt the husband’s value without accounting for the intangible asset of enterprise goodwill. Citing their earlier decision in May, the court agreed. “In May, we defined the term ‘enterprise goodwill’ and adopted the view of the majority of jurisdictions in holding that it is an asset subject to equitable distribution in divorce.” The court also iterated that “once a professional practice has been determined to possess distributable goodwill, a value must be placed thereon” (emphasis added).
Although the husband’s valuation report mentioned enterprise goodwill as a factor, it did not specifically consider it or attribute any value to this component of the practice. “Likewise, the lower court did not offer any explanation for failing to recognize any enterprise goodwill.” The absence of any valuation for enterprise goodwill “as well as any explanation for such absence” was error, the appellate court ruled. It remanded the case for findings consistent with May, including “a reasonable approximation” of enterprise goodwill value, based upon the evidence and sound valuation methods. In particular, should the trial court determine the practice to lack enterprise goodwill, it should also specify its findings and its reasons.
Helfer v. Helfer, 2007 W. Va. LEXIS 83 (November 8, 2007)
