Strauss v. Strauss

HARRELL, Judge. On 26 February 1993, the Circuit Court for Allegany County granted Jo Strauss, appellee and cross-appellant, an absolute divorce from Howard Strauss, appellant and cross-appellee. The divorce judgment provided her with a monetary award of $881,289.00 and indefinite alimony in the amount of $15,000.00 per month. Mr. Strauss filed a Motion to Alter or Amend Judgment on 5 March 1993, contending, inter alia, that the amount of alimony was excessive, the monetary award was inequitable, and the court had erred in valuing the parties’ marital property.

The court responded on 12 May 1993 by reducing the alimony amount established in the previous order to $2,000 per month, but leaving its other determinations ⁴⁹⁴ unchanged. Both parties appeal from this final judgment and present the following issues, which we have slightly rephrased, for our review: By Howard Strauss 1. Did the trial court err in granting the monetary award because: (a) its determination and valuation of professional goodwill as marital property were incorrect; (b) its valuation of the tangible, assets of the professional practice was clearly erroneous; (c) its valuation of the parties’ personal property was clearly erroneous; and (d) ordering the award to be paid “forthwith” represented an abuse of the court’s discretion? By Jo Strauss 2.

Was the reduction in alimony from $15,000 per month to $2,000 per month clearly erroneous, an abuse of discretion, and error? FACTS The parties were married on 4 May 1972 in Silver Spring, Maryland. At the time of the marriage, Howard Strauss was a student in the University of Maryland Dental School and Ms. Strauss was employed as a nurse. In 1978, after Dr. Strauss completed an internship program in oral surgery at University Hospital in Baltimore, the parties moved to Cumberland, Maryland, where he opened a private office for the practice of oral and maxillofacial surgery.

Ms. Strauss assisted her husband with the opening of the office, but returned home to be with the couple’s children after he hired a full time staff. Dr. Strauss earned his board certification in oral and maxillofacial surgery in 1980. In May of 1990, Dr. Strauss hired Lisa Long as a part-time registered nurse in preparation for the opening of a second surgical suite in his Cumberland office. The two became involved in a romantic and intimate relationship, which Ms. ⁴⁹⁵ Strauss discovered in April of 1991.

Although the parties subsequently took a family vacation and participated in counseling in an attempt to reconcile their marriage, these efforts failed and they separated on 22 June 1991. At this time, Ms. Strauss learned of another instance of her husband’s infidelity that had occurred even earlier in their marriage. On 11 February 1992, Ms. Strauss filed a Complaint for Absolute Divorce on the grounds of adultery. A trial was held on 25 and 26 January 1993, during which the parties’ financial situation was publicly dissected.

First, the parties set forth several stipulations they had agreed upon regarding the division of marital property: (1) Ms. Strauss would receive the former marital home, valued at $297,600, free and clear of liens or encumbrances; (2) Dr. Strauss would receive possession of the vacation property, valued between $252,000 and $281,000, free and clear of liens or encumbrances; and (3) Ms. Strauss would retain certain items of personal property valued at $103,239 while Dr. Strauss’s agreed items would total $53,473. The court also considered the financial situation of Ms. Strauss and the Strauss’ three children. As far as her income was concerned, Ms. Strauss testified that she had contributed no more than ten percent of the total family earnings, as she had abandoned her career as a Registered Nurse upon the birth of her first child in 1974. She also submitted a statement of her monthly expenses, which indicated that she required $7,429.37 each month to meet her personal needs and $5,105 to address adequately the needs of the children.

Ms. Strauss testified that this expense list reflected her average monthly expenses for the thirteen month period immediately preceding trial. By the time of trial, Dr. Strauss had opened a satellite office in Oakland, Maryland. The gross annual revenues from his total practice exceeded $1,000,000. He was the only board-certified specialist in oral and maxillofacial surgery in Western Maryland, drawing patients from a 75 to 100 mile radius of Cumberland to his main office.

The court considered the ⁴⁹⁶ value of the dental practice as a part of the determination of marital property, and heard testimony from two opposing experts to establish its value. Ms. Strauss’s expert, Jon O. Clark, estimated the fair market value of the dental practice to be $1,197,000. He based this figure on market data and hypothetical transactions taken from an annual publication of a Philadelphia health care group entitled The Goodwill Registry. Mr. Clark included goodwill as a part of his computation, which he explained that the Registry defined as a combination of intangibles varying on a case-by-case basis as to existence and value.

That combination might include location, use of a practice or individual’s name, patient information, (embodied in a clinical record), a favorable leasehold, a covenant not to compete, compensation for past or future management and entrepreneurial services, payments made for referral to an associate or recommendation of a successor, patient lists, credit records, patient care and/or employee contracts, as well as assignments of future income. Mr. Clark elaborated that “[h]ow they [The Goodwill Registry ] view goodwill is they bundle it in intangibles.” Mr. Clark also considered two other valuation methods, which produced similar results, but rejected them based on his belief that they were inconsistent with Maryland caselaw. On cross-examination, Mr. Clark explained that his estimate represented a combination of the business’s adjusted book value ($546,000) and its intangible, or goodwill, value ($651,-000). Counsel for Dr. Strauss inquired into these figures: Counsel: Well, you’ve got this $651,000 goodwill figure.

How much of the $651,000 represents goodwill of the corporation and how much of the $651,000 is based solely on the skill, experience and reputation of Howard Strauss? Mr. Clark: My opinion is that the total amount represents the practice goodwill and that’s the total amount that could be sold in a transaction, and of course, I base that on the ⁴⁹⁷ facts from this market data that has shown that amount that is possible to be sold. Counsel: But that market data, this is from the Goodwill Registry, doesn’t that specifically state to you that goodwill is also a combination of the individual’s name and reputation? Mr. Clark: I just answered in the affirmative.

Yes, that’s one of several factors that they list in the definition. Counsel: In your opinion, can goodwill ever be separated into two components; namely, number one, professional goodwill, the goodwill of the corporation, and number two, goodwill which is personal to the practitioner? Mr. Clark: Yes. Counsel: Why didn’t you do that in this case?

Mr. Clark: In this case, I’m basing my opinion on the market data, these transactions which represent the goodwill accruing to the practice, not the goodwill accruing to the person. So I am using these data to estimate the value of the practice goodwill. Counsel: Then by completely disregarding the individual and his reputation, Howard Strauss, essentially what you have provided us with is an opinion of the goodwill of this corporation where the oral surgeon is John Doe. Isn’t that correct?

Mr. Clark: That’s correct. Mr. Clark’s testimony ended with the following exchange with the trial judge, who inquired about the value of personal goodwill in the expert’s analysis: Court: Do I interpret your testimony correctly when I assume that I have heard you say that, in effect, you did not break out of the goodwill figure, that you assigned to this business, any amount attributable solely to the personal reputation of Dr. Strauss? Mr. Clark: Yes, Your Honor. That’s correct.

Court: All right. In the market value approach in your schedule of the 17 transactions, I gather that there was no ⁴⁹⁸ attribution to personal reputation of any of the practitioner sellers in those cases. Is that a fair conclusion? Mr. Clark: Yes, Your Honor.

That’s my understanding from the definition in the market data report that I read; that they considered to be professional practice goodwill. I believe they even call it that. Court: Is there an acceptable method for breaking out, that is evaluating separately, the general goodwill of the business and that which is attributable solely to the personal reputation of the practitioner? * * * * * * Mr. Clark: I’m sorry. Difficult question to answer____ If we look at these data that I’ve presented in Exhibit 11 and following the guidance provided in the explanatory notes that come with the Goodwill Registry that it includes the professional goodwill that has gone along with the practice, the practice professional goodwill, and if we also assume, as the Courts have assumed, that personal goodwill cannot be sold, cannot be transferred, then what you have is a series of transactions in which there has been no personal goodwill recorded because ipso facto it cannot be transferred.

And so the assumption in all this data is that this is the goodwill that could be transferred, and in fact, was transferred, and considered to be a bundle of intangible assets which have been transferred. So as to your specific question about whether there is a methodology for determining, an analytical methodology for determining the amount of personal goodwill, in that it can’t be sold, there generally isn’t a methodology that I’m aware of to do that. Appellant’s expert, Dr. Stanley L. Pollock, testified following Mr. Clark’s testimony. Dr. Pollock estimated the fair market value of the dental practice as of 31 December 1992 to be $288,614.00.

He described his methodology in arriving at this estimate as “a very simple balance sheet approach” that did not include intangible assets of the business. He explained: ⁴⁹⁹ I’ve never seen a case in my entire experience where goodwill was so tied up, so bonded to one particular individual as I have in the case of Dr. Strauss.... I think this boils down to a fair market value of the tangible assets only because of the unique situation with Dr. Strauss’s reputation, his skill, his ability. Dr. Pollock contradicted Mr. Clark’s earlier testimony in two fundamental respects.

First, he criticized Clark’s reliance on data taken from the Goodwill Registry, of which he claimed to be a contributor, as inappropriate; He advised the court that the Goodwill Registry assigns a fixed percentage of a business’ total revenue to represent goodwill, and in this situation, where the dentist’s reputation was so tied up with the practice, such an analysis cannot apply. Second, Dr. Pollock explained that normally it is possible to separate practice goodwill from personal goodwill based on the skill, expertise and reputation of the practitioner. Indeed, he claimed, such a division is done “all the time.” In the Memorandum and Judgment dated 26 February 1993, the Court granted Ms. Strauss an absolute divorce on the grounds of adultery and ordered Dr. Strauss to pay $15,000.00 monthly in alimony. The court also made the following findings as part of its determination to award Ms. Strauss a monetary award in the amount of $881,289.00: 1 ⁵⁰⁰ 7.

Personal effects. The Court finds that the following items are not marital property as they were gifts to Howard: Westminster chimes clock, value $230.00; sterling silver service for twelve, Schofield Lorraine pattern, with serving pieces, $3,000.00; two silver vases, value unknown; two silver sconces, value unknown. The balance of the personal effects are marital property. The parties apparently intended to keep those items in the possession of each (except, of course, Howard’s non-marital property, located at 515 Nemacolin Avenue).

Josephine has furnishings and jewelry worth $103,239.00. Howard’s furnishing are worth $56,703.00. The total is $159,942.00. :H sfs ^ * * % 10. Corporation known as Howard R. Strauss, DDS, PA.

The Court finds that the corporation has goodwill value separate from the reputation, skill and experience of Howard. It finds the appraisal of market value testified to by Jon O. Clarke persuasive and accepts his valuation of $1,197,000.00. The corporate stock is wholly owned by Howard. The trial judge supported these marital property determinations by explaining that he had “careful[ly] review[ed] ... the evidence in light of the ten factors ... required by Section 8-205 of the Family Law Article,” which sets forth the elements to be considered in determining the amount and method of payment.

In particular, the judge noted Ms. Strauss’s contributions to the dental practice, and the effect of the alimony award in determining the amount of the monetary award. The judge then ordered Howard Strauss to pay the monetary award “forthwith,” and ruled that the amount due would be reduced to judgment to the extent that it was not paid within thirty days. Dr. Strauss filed a timely Motion to Alter or Amend, protesting the court’s valuation of the parties’ marital property as well as the resulting monetary award and amount of alimony. The court amended its previous order on 12 May 1993 to reflect a modified alimony grant of $2,000 per month ⁵⁰¹ indefinitely, but left the other elements of the final divorce judgment unaltered.

The court explained that in light of Ms. Strauss’s “expressed needs and her ability to meet those needs,” the smaller sum was more appropriate. Dr. Strauss filed a notice of appeal on 9 June 1993, and Ms. Strauss filed a cross-appeal five days later. MARITAL PROPERTY Goodwill Maryland law requires the application of a three-step analysis when calculating a monetary award in the course of a divorce proceeding: (1) the trial court must initially characterize all property owned by the parties, however titled, as either marital or nonmarital, Md.Code (1984, 1991 Repl. Vol., 1992 Cum. supp.), § 8-203 of the Family Law Article (hereinafter “F.L.”); (2) the court shall then determine the value of all marital property, Id. § 8-204; and, finally, (3) the court may then make a monetary award as an adjustment of the parties’ equities and rights in the marital property, Id. § 8-205(a).

Harper v. Harper, 294 Md. 54, 79 , 448 A.2d 916 (1982); Speropulos v. Speropulos, 97 Md.App. 613, 618 , 631 A.2d 514 (1993); Ward v. Ward, 52 Md.App. 336, 339 , 449 A.2d 443 (1982). Applying this three step analysis, courts are guided by the purpose of the Marital Property Act, which was designed to reflect the Legislature’s goal of “correcting] those inequities that uncorrected historical development of the law had wrought” stemming from the husband’s traditional role as breadwinner and the wife’s corresponding role of family caretaker. Unkle v. Unkle, 305 Md. 587, 596 , 505 A.2d 849 (1986) quoting the Governor’s Commission on Domestic Relations Laws (1978) at 14. Thus, the Legislature took pains to mold a statute that recognizes that “a spouse whose activities do not include the production of income may nevertheless have contributed toward the acquisition of property by either or both spouses during the marriage” regardless of how that property may be titled.

Unkle, 305 Md. at 595 , 505 A.2d 849 . The ⁵⁰² Court of Appeals has emphasized that “careful consideration” is to be “given to both monetary and nonmonetary contributions made by the respective spouses” in fashioning the most equitable money award. Id. Maryland caselaw, however, has carved an exception to this broad scope of includable property: Assets that are “uniquely personal” to the holder cannot, by their very nature, be held jointly with another person and, consequently, cannot be classified as marital property.

See id. at 596 , 505 A.2d 849 (personal injury claim); Archer v. Archer, 303 Md. 347, 357 , 493 A.2d 1074 (1985) (professional degree or license). Goodwill, 2 an intangible asset that may add value to a business entity, falls within this exception. As background, we note that it is well established in Maryland law that goodwill, although an intangible asset, is nonetheless a legally protected property right. Archer, 303 Md. at 356 , 493 A.2d 1074 ; Schill v. Remington Putnam Co., 179 Md. 83, 88-89 , 17 A.2d 175 (1941); Green v. Green, 64 Md.App. 122, 134 , 494 A.2d 721 (1985).

Based on this status, the goodwill of a spouse’s business is to be valued and equitably divided pursuant to the three step marital property analysis. Nevertheless, when the business in question is a sole professional practice, owners have claimed that any good ⁵⁰³ will inuring to the entity is not marital property, but, rather, a direct reflection of the owner’s reputation and skill and therefore “uniquely personal” to the holder. This rationale was first acknowledged in Maryland in Brown v. Benzinger, 118 Md. 29, 36 , 84 A. 79 (1912), in which the Court distinguished between the sale of the good will of a trade or business of a commercial character where the location is an important feature of the business, and the sale of an established practice and goodwill of a person engaged in a profession or calling where the income therefrom is the immediate or direct result of his labor and skill and where integrity, skill, ability and other desirable personal qualities follow the person and not the place. The Court of Appeals followed this rationale in Prahinski v. Prahinski, 321 Md. 227, 228 , 582 A.2d 784 (1990), in which the Court was asked to decide whether the goodwill value of a sole law practice was a component of the parties’ marital property.

Margaret Prahinski contended that the goodwill that had inured to her husband’s legal practice during the course of their marriage was acquired, in part, because of her contributions. Id. at 231 , 582 A.2d 784 . Thus, she concluded, the equitable principles governing the division of marital property in Maryland entitled her to a portion of its value. Id. at 231 , 582 A.2d 784 .

Leo Prahinski, on the other hand, maintained that because his business had always been a sole law practice, any intangible value assigned to it would, by implication, be based on his personal reputation alone. Id. at 232 , 582 A.2d 784 . The Court of Appeals ruled in favor of Mr. Prahinski. First, the Court agreed that the goodwill of a sole law practice is inherently inseverable from the personal reputation of the sole practitioner, and, as such, cannot be marital property.

The Court elaborated: It is the attorney whose name, whether on the door or stationery, is the embodiment of the practice.... In the final analysis ... it is the attorney alone who is responsible for the work that comes out of the office. Rule of Profes ⁵⁰⁴ sional Conduct 5.3(c). The attorney’s signature or affidavit places his seal of approval on the work being done and makes the attorney liable for its accuracy and authenticity.

The professional assurance is what might have convinced some clients to use Leo F.X. Prahinski, Attorney-at-Law, instead of going to a title company to have their settlements completed. The assurance would end should Leo somehow remove himself