Prahinski v. Prahinski

BLOOM, Judge. Leo Prahinski appeals from a judgment of the Circuit Court for Prince George’s County severing the bonds of matrimony between him and appellee, Margaret Prahinski. Although the divorce aspect of the case was uncontested, appellant is aggrieved by those portions of the judgment that distributed certain marital property between the parties and granted a substantial monetary award in addition to indefinite alimony. Specifically, appellant contends: 1.

The trial court erred in its valuation of the appellant’s business. 2. The trial court erred in awarding indefinite alimony to appellee and in making that award the trial court failed to consider the required statutory factors. 3. The trial court erred in requiring that alimony payments begin after the payment of a monetary award representing the business value; and 4. The trial court erred in the distribution of marital assets and likewise failed to consider the required statutory factors.

In her brief, appellee presents us with a fifth issue. But since she failed to file a cross-appeal pursuant to Md. Rule 1012g, she may not raise this issue on appeal. See, Joseph H. Munson Co. v. Sec. of State, 294 Md. 160, 168 , 448 A.2d 935 (1982), aff'd, 467 U.S. 947 , 104 S.Ct. 2839 , 81 L.Ed.2d 786 (1984). Consequently, we will address only those issues that were presented by appellant.

Background The parties met as college students at the University of Maryland. They were married in 1965, at which time appel ¹²¹ lee, who had completed her freshman year, decided to discontinue her education in order to maintain the family home and, eventually, to raise the parties’ two children. 1 Appellant completed his undergraduate studies and continued his education in law school. In 1971, appellant started his own law practice. Appellee worked with appellant in that practice; she was, as appellant acknowledged, legal secretary, office manager, and a “Gal Friday, doing anything and everything necessary.

She was very helpful.” Initially, appellant’s practice was varied in that he handled negligence cases, estate and will work, some collection work, and domestic relations cases. As appellant testified, he “was dying for [the] Lawyer Referral Service to call with cases.” In 1974, appellant handled his first real estate settlement; by 1977 or 1978 real estate settlement work became a major portion of his practice. As that aspect of the practice grew, appellee’s involvement in the practice also grew. Appellant testified that at the time of the trial his practice was probably 95 to 97% settlement work with the remaining percentage being wills work and the giving of legal advice to clients on a variety of matters.

In 1983, appellant became involved with another woman. The parties separated in March 1984. Appellee continued to work for appellant at his law office until October 1986, at which time appellant insisted that she leave the office because of the pending divorce litigation. During the separation, appellee remained in the family home while appellant resided in a house in Montgomery County.

Appellee filed for divorce on November 14, 1986. Hearings were held on July 1, 2, and 6, 1987. At the conclusion of the July 6 hearing, the court granted the parties an absolute divorce, holding the property disposition, monetary award, and alimony issues under advisement. By written order dated July 7, 1987, and filed July 10, 1987, the court ¹²² incorporated its oral order of absolute divorce, provided for the distribution of marital assets, and granted a monetary-award and indefinite alimony.

It is from that order that this appeal was taken. Business Evaluation A major issue in this case is the evaluation of the husband’s business. The court found it to be worth $300,000, which consisted entirely of goodwill since the tangible physical assets were worth less than the liens thereon and the business bank accounts were separately valued. The court granted appellee a monetary award of $150,000, specifically designated as one-half of the value of the business, payable, with interest, at the rate of $3,000 per month.

Appellant’s first, and principal, argument on appeal is that the evaluation and, therefore, the monetary award based thereon are erroneous. The threshold consideration of the business evaluation issue is what is the nature of appellant’s business. Appellant contends that his business is a law practice that specializes in real estate settlements; appellee contends that it is a title business. The trial court, agreeing with appellee, found appellant’s business to be a title business and not a law practice, and valued it as such.

We believe that finding to be clearly erroneous. Md. Rule 1086. On the basis of the evidence presented, appellant’s business is unquestionably a law practice and not a title company. A law practice specializing in real estate transactions and a title business are essentially similar in the functions they perform and the services they provide.

Both examine land records and approve titles to real estate; both prepare deeds, mortgages and other documents deemed necessary or appropriate to effectuate transfers of title to realty and the securing of liens thereon; both conduct settlements and collect and disburse funds in connection with sales and mortgages of real estate; both either issue to, or obtain for, the purchaser or mortgagee title insurance. An attorney ¹²³ may conduct such business in his own name, as an attorney, or he may opt to do so as, and under the name of, a title company. A title company need not be owned by an attorney, but a title company may need to have an attorney on its staff or be associated with one, since, in certain Maryland counties, a deed, mortgage, or deed of trust cannot be recorded “unless it bears a certification that the instrument has been prepared by an attorney admitted to practice before the Court of Appeals, under his supervision, or by or on behalf of one of the parties named in the instrument.” See, Md. Real Prop.Code Ann. § 3-104(f) (1988 RepLVol.). Whether operated as a law practice or title company, it would appear that the real estate settlement business can produce substantial income. 2 Despite the similarities, the practice of law, even one dedicated almost exclusively to real estate transactions, is not merely the operation of a title company, and a title company is not a law practice.

The difference is not so much in the nature of the “finished product”—an insured title or mortgage—delivered to the client, but in the nature of the responsibility assumed by the provider, particularly in the eyes of the client. The client of the title company may expect no more than the finished product; the client of the attorney has every reason to expect and rely upon the attorney’s professional expertise, advice and counsel in addition to the product he could obtain from a title company. The difference may be largely in the perception of the client, but it is that perception, and the professional reputation attached thereto, that would cause the client to choose an attorney rather than a title company to provide the service. In the case sub judice, when appellant began his law practice in 1971, he held himself out to the public, as he continues to do, as “Leo F.X. Prahinski, Attorney at Law.” ¹²⁴ According to his testimony, as his skills in conducting settlements grew realtors began to return to him for settlements.

When asked why realtors returned, appellant testified that “they can count on me to help if a problem comes up in getting a case settled, and they bring [cases] to my office because they know [the transactions] will settle.” Appellant further testified that he often gave legal advice at settlements and explained each party’s obligation under the contracts and the law. Finally, appellant testified that he frequently gave legal advice to people, drafted wills, answered legal questions, occasionally handled a negligence case, and handled legal matters relating to real estate other than settlements. None of this evidence was contradicted; to a large extent it was corroborated. Appellee relies heavily on the fact that much of the work done at the business was done by appellant’s staff 3 rather than by appellant.

That is not unusual in law practices, in many of which non-lawyers—student law clerks, paralegals, and secretaries—do much of the research and clerical work, which the attorney reviews and then adds his professional imprimatur to create a legal end product. According to the evidence, that is precisely what occurred in appellant’s office. Appellant’s staff did clerical work and initial research. Appellant, applying his professional judgment, would then review their work, conduct the settlement, and certify the settlement forms, pursuant to Md. Real Prop.Code Ann., § 3-104(f), thereby taking full professional responsibility for the work done by his staff as well as by himself.

The only evidence to the effect that appellant’s business was a title business rather than a law practice ¹²⁵ came from appellee’s expert witness. That witness, a certified public accountant, was accepted by the court as an expert in the field of accounting and appraising service businesses. The witness’s expertise did not, however, include the classification of businesses. And since a title business and a law practice are both service businesses, with considerable similarity between them, the expert’s testimony that appellant’s business was a title and escrow business should be scrutinized carefully.

In one sense, the witness was correct; the bulk of appellant’s business or practice resembled that of a title business with an in-house counsel. But the witness’s opinion that he was valuing a title company ignores the fact that appellant rendered legal advice on matters other than real estate settlements and held himself out to the public as an attorney, not as a title company. To a large extent, the witness’s opinion that appellant’s business was not the practice of law was based upon his own admittedly limited experience in attending real estate settlements, at which, he claimed, he never heard legal advice asked for or given. All of the other evidence being entirely to the contrary, the testimony of appellee’s expert witness that appellant’s practice was a title company business cannot make it so.

As we recently noted in Ziegler v. Kawasaki Heavy Industries, Ltd., 74 Md.App. 613 , 539 A.2d 701 (1988), quoting Bernstein v. Reforzo, 37 Md.App. 724, 732 , 379 A.2d 181 (1977), cert. granted, 282 Md. 738 (1978), appeal dismissed, May 18, 1978, an expert opinion has “no greater value than the facts on which it is based.” Slip op. at 18. In this case it has no value at all, since the facts upon which the opinion was based simply do not support the opinion, and the witness lacked the expertise adequately to evaluate those facts. The court should not have accepted the witness’s opinion as to the nature of appellant’s practice; in so doing it made a factual finding that was clearly erroneous. Md. Rule 1086.

Having held that the expert witness wrongly characterized appellant’s practice as a title company, we turn now to the valuation of that practice. ¹²⁶ A law practice, like a title company, is a service business; and whatever classification he assigned to it, appellee’s expert was valuing a service business, a subject on which he did qualify as an expert. Appellant testified that the law practice had tangible assets of $11,000, but was burdened by $13,000 in liabilities. This evidence was not controverted, and appellee’s expert conceded that the law practice had no “tangible assets entering into [the] net worth” of appellant’s practice. Nevertheless, the expert placed a value of $450,000 on the business, which the court, for some unexplained reason, reduced to $300,000, on the basis of which it granted appellee a monetary award of $150,000.

There being no tangible assets, the expert’s evaluation and the court’s finding of value were based entirely on an intangible asset, “goodwill.” Appellant contends that goodwill is not marital property. In the alternative, he contends that if goodwill is marital property, then it was improperly valued in the instant case. Before considering appellant’s contentions, we shall examine the nature of goodwill. Goodwill is an intangible property asset commonly defined as: [T]he advantage or benefit, which is acquired by an establishment, beyond the mere value of the capital, stock, funds, or property employed therein, in consequence of the general public patronage and encouragement, which it receives from constant or habitual customers, on account of its local position, or common celebrity, or reputation for skill or affluence, or punctuality, or from other accidental circumstances or necessities, or even from ancient partialities or prejudices.

J. Story, Commentaries on the Law of Partnership as a Branch of Commercial and Maritime Jurisprudence, § 99, at 139 (Boston 1841). The Court of Appeals recognized this definition in Brown v. Benzinger, 118 Md. 29, 35 , 84 A. 79 (1912). In Hagan v. Dundore, 187 Md. 430, 442 , 50 A.2d 570 (1947), the Court of Appeals noted that “goodwill” ¹²⁷ had been variously defined, from Lord Eldon’s terse definition of “the probability that the old customers will resort to the old place,” Cruttwell v. Lye, 17 Ves.Jr. 335, 346, 34 Eng.Rep. 129, 134 (ch. 1810), to “the goodwill of a business comprises those advantages which may inure to the purchaser from holding himself out to the public as succeeding to an enterprise which has been identified in the past with the name and repute of his predecessor.” Knoedler v. Boussod, 47 F. 465, 466 (S.D.N.Y.1891), aff'd., 55 F. 895 (2nd Cir.1893). The preceding characterizations of goodwill raise the question of when is goodwill, specifically professional goodwill, an asset with value and therefore property to be included in an equitable distribution pursuant to Md. Fam.Law Code Ann. § 8-201 et seq.

See also, Archer v. Archer, 303 Md. 347 , 493 A.2d 1074 (1985) (only items imbued with the traditional indicia of “property,” i.e., transferable, assignable, devisable, subject to conveyance, sale, pledge or inheritance, are proper subjects of equitable distribution). The key issue as to the professional goodwill of a sole proprietorship, as in the case sub judice, has to do with the value, if any, which can be attributed to it, causing it to be subject to equitable distribution. Whether professional goodwill can be marital property susceptible to valuation and distribution as such has been the subject of many articles. See, e.g., Parkman, The Treatment of Professional Goodwill in Divorce Proceedings, 18 Fam.L.Q. 213 (1984); Family Law Comment, The Recognition and Valuation of Professional Goodwill in the Marital Estate, 66 Marg.L.Rev. 697 (1983); Note, Treating Professional Goodwill As Marital Property in Equitable Distribution States, 58 N.Y.U.L.Rev. 554 (1983); Foster, Equitable Distribution of Professional Degrees, Licenses and Goodwill, 1 Fairshare 9 (Jan.1983); Raggio, Professional Goodwill and Professional Licenses as Property Subject to Distribution Upon Dissolution of Marriage, 16 Fam.L.Q. 147 (1982); Kennedy & Thomas, Putting A Value on: Education and Goodwill, 2 Fam.Advoc. 3 ¹²⁸ (1979); Lurvey, Professional Goodwill on Marital Dissolution: Is It Property or Another Name for Alimony?, 52 Cal.St.B.J. 27 (1977).

See also, Accountability for Goodwill of Professional Practice in Actions Arising from Divorce or Separation, 52 A.L.R.3d 1344 (1973). The courts have been as active as the commentators in addressing the question of professional goodwill in an equitable distribution. See, e.g., Wilson v. Wilson, 294 Ark. 194 , 741 S.W.2d 640 (1987); Wisner v. Wisner, 129 Ariz. 333 , 631 P.2d 115 (Ct.App.1981), harmonized, Mitchell v. Mitchell, 152 Ariz. 317 , 732 P.2d 208 (1987) (en banc); In re Marriage of Foster, 42 Cal.App.3d 577 , 117 Cal.Rptr. 49 (1974); In re Marriage of Nichols, 43 Colo.App. 383 , 606 P.2d 1314 (1979); In re Marriage of White, 98 Ill.App.3d 380 , 53 Ill.Dec. 786 , 424 N.E.2d 421 (1981), appeal after remand, 151 Ill.App.3d 778 , 104 Ill.Dec. 424 , 502 N.E.2d 1084 (1986); Powell v. Powell, 231 Kan. 456 , 648 P.2d 218 (1982); Heller v. Heller, 672 S.W.2d 945 (Ky.Ct.App.1984); In re Marriage of Hull, 712 P.2d 1317 (Mont.1986); Taylor v. Taylor, 222 Neb. 721 , 386 N.W.2d 851 (1986); Hurley v. Hurley, 94 N.M. 641 , 615 P.2d 256 (1980), limited overruling on other grounds, Ellsworth v. Ellsworth, 97 N.M. 133 , 637 P.2d 564 (1981); Weaver v. Weaver, 72 N.C.App. 409 , 324 S.E.2d 915 (1985); Goger v. Goger, 27 Or.App. 729 , 557 P.2d 46 (1976); Nail v. Nail, 486 S.W.2d 761 (Tex.1972); In re Marriage of Fleege, 91 Wash.2d 324 , 588 P.2d 1136 (1979) (en banc); Holbrook v. Holbrook, 103 Wis.2d 327 , 309 N.W.2d 343 (1981). The specific issue of the professional goodwill of an attorney’s practice in a divorce situation has also been addressed by some courts.

See, e.g., In re Marriage of Fenton, 134 Cal.App.3d 451 , 184 Cal.Rptr. 597 (1982); Dugan v. Dugan, 92 N.J. 423 , 457 A.2d 1 (1983) (goodwill of a law practice is subject to distribution); Beasley v. Beasley, 359 Pa.Super. 20 , 518 A.2d 545 (1986), allocatur denied, 516 Pa. 631 , 533 A.2d 90 (1987) (professional goodwill of a law practice operated as a sole proprietorship is not marital property). Since Maryland has not heretofore addressed the question of professional goodwill relative to an eq ¹²⁹ uitable distribution, we deem it appropriate to examine the cases from our sister states and analyze how they have handled this question. Before we do so, however, we should consider whether the fact that appellant’s business is a law practice affects the determination of its goodwill value for purposes of equitable distribution. In Archer v. Archer, supra, the Court of Appeals held that a medical degree or license was not marital property, but merely reflected the possibility of future earnings. 303 Md. at 357 , 493 A.2d 1074 .

The Archer rationale, of course, is equally applicable to a law degree and a license to practice law. Insofar as such degrees and licenses reflect future earnings, they should be treated as considerations affecting alimony and not as marital property. See, Archer v. Archer, 303 Md. at 359 , 493 A.2d 1074 . Nevertheless, when the opportunity provided by the license or degree is exercised, goodwill may come into existence, and if it does, it should be differentiated from earning capacity.

True goodwill reflects not simply a possibility of future earnings, but a probability based on existing circumstances. That is what distinguishes it from the professional license or degree, to which is attached a mere prospect of enhanced future earnings that are too remote and speculative for the degree or license itself to be deemed property. Archer, 303 Md. at 357 , 493 A.2d 1074 . Unlike the license and the degree, goodwill is a marketable and transferable asset.

See Dugan v. Dugan, supra, 457 A.2d at 6 . There may be some degree of likelihood that goodwill exists as a valuable asset of a law firm; it is doubtful that the practice of a sole practitioner enjoys any marketable goodwill. A principal attribute of goodwill of any business, trade, or profession is its firm or trade name. There are law firms bearing the names of long deceased partners. 4 ¹³⁰ Presumably, the right to use the firm name, which is a major part of the goodwill of the firm, is a valuable asset.

But the sole practitioner, practicing under his own name, as is the case with appellant here, does not have a trade name that is transferable. No one but appellant can practice law under the name “Leo F.X. Prahinski, Attorney-at-law.” His trade name is not a saleable, transferable commodity. After a divorce, a lawyer’s law practice will continue to benefit from whatever goodwill it may have had during the marriage. If, in fact, goodwill exists, it would be inequitable to ignore the contribution of the attorney’s spouse to the development of that goodwill during the marriage.

If it does exist, therefore, goodwill is an asset to be valued and considered in equitable distribution. Obviously, equitable distribution does not require that all property be part of some monetary award, but the attorney’s spouse is entitled to have true goodwill, as distinguished from future earnings, considered as any other property acquired during the marriage. Accordingly, a number of jurisdictions have held that professional goodwill is property subject to distribution. See, e.g., In re Marriage of Lopez, 38 Cal.App.3d 93 , 113 Cal.Rptr. 58 (1974); Dugan v. Dugan, 92 N.J. 423 , 457 A.2d 1 (1983); In re Marriage of Kaplan, 23 Wash.App. 503 , 597 P.2d 439 (1979).

There is considerable doubt, based on ethical considerations, that the goodwill of a law practice can be sold or transferred. See, Maryland State Bar Assoc., Inc. Committee on Ethics, Opinion 81-55 (1981) (citing Validity of Contract for Sale of “Goodwill” of Law Practice, 79 A.L.R.3d 1243 (1977)). Even so, such goodwill may be proven to exist and to be a real element of economic worth. ¹³¹ Its valuation would present difficulty, but the fact that ethically it could not be sold should not necessarily eliminate goodwill as an element of value to be considered by the court in making an equitable distribution. See, Stein v. Stein, 66 N.J. 340 , 331 A.2d 257 (1975); Levy v. Levy, 164 N.J.Super. 542 , 397 A.2d 374 (1978).

That even true goodwill cannot ethically be sold may adversely affect but not necessarily eliminate its value as property, capable of being transferred, devised, or inherited. Therefore, if there is true goodwill in an attorney’s practice, separable from his individual future earning capacity, then a value can be placed on it. Whether, in this case, appellant’s law practice has true goodwill is the question which we now address. Essentially, three positions have been taken relative to professional goodwill as marital property.

Currently, the majority view is that professional goodwill is a business asset with a determinable value and is thus marital property. See, e.g., Wisner v. Wisner, 129 Ariz. 333 , 631 P.2d 115 (Ct.App.1981), harmonized, Mitchell v. Mitchell, 152 Ariz. 317 , 732 P.2d 208 (1987) (en banc); In re Marriage of Foster, 42 Cal.App.3d 577 , 117 Cal.Rptr. 49 (1974); In re Marriage of Nichols, 43 Colo.App. 383 , 606 P.2d 1314 (1979); In re Marriage of White, 98 Ill.App.3d 380 , 53 Ill.Dec. 786 , 424 N.E.2d 421 (1981), appeal after remand, 151 Ill.App.3d 778 , 104 Ill.Dec. 424 , 502 N.E.2d 1084 (1986); Heller v. Heller, 672 S.W.2d 945 (Ky.Ct.App.1984); In re Marriage of Hull, 712 P.2d 1317 (Mont.1986); Dugan v. Dugan, 92 N.J. 423 , 457 A.2d 1 (1983); Hurley v. Hurley, 94 N.M. 641 , 615 P.2d 256 (1980), limited overruling on other grounds, Ellsworth v. Ellsworth, 97 N.M. 133 , 637 P.2d 564 (1981); Weaver v. Weaver, 72 N.C.App. 409 , 324 S.E.2d 915 (1985); Goger v. Goger, 27 Or.App. 729 , 557 P.2d 46 (1976); In re Marriage of Fleege, 91 Wash.2d 324 , 588 P.2d 1136 (1979). The Courts that have found such goodwill to be marital property have generally adopted a method of evaluation involving the capitalization of excess earnings. For example, in Dugan v. Dugan, supra, the New Jersey ¹³² Supreme Court suggested a capitalization of excess earnings method as follows: 1.

Ascertain what a professional of comparable experience, expertise, education and age would be earning as an employee in the same general locale; 2. Determine and average the professional’s net income before federal and state income taxes for a period of years, preferably five; 3. Compare