589 S.E.2d 536 (W. Va. 2003)
The parties, Hillman H. May and Carol S. May, were married on June 23, 1979.1 In 1980 the couple built a home on property adjacent to Dr. May's dental office.2 From about 1980 to 1993 Mrs. May worked at least twenty hours per week at the dental office, and the parties had three children during the marriage.3
On May 22, 2000, Mrs. May filed for divorce.4 On September 24, 2001, the Circuit Court of Hancock County granted the parties a divorce on the grounds of irreconcilable differences.5 The decree left the distribution of marital property unresolved for subsequent litigation before the family court judge.6
During the proceeding before the family court judge, the parties presented expert testimony on the valuation of Dr. May's solo dental practice.7 Dr. May's expert valued the practice at $55,000 including a twenty percent discount for lack of marketability.8 Mrs. May's expert placed a fair market value of $120,000 that included a value for goodwill.9
By order entered on February 26, 2002, the family court judge adopted the dental practice valuation proffered by Mrs. May's expert.10 The judge set Mrs. May's equitable distribution payment for her interest in the dental practice at $889 per month from June 1, 2004, to May 31, 2012.11 The family court judge also found the real estate to be marital property with a net value of $125,324.44 and awarded Mrs. May a one-half interest in that value.12 From these rulings Dr. May filed an appeal directly to the Supreme Court of Appeals of West Virginia.13
Testimony from Mrs. May's expert established that the goodwill component included in the $120,000 valuation was personal goodwill of Dr. May rather than enterprise goodwill.14
Whether the family court judge erred in adopting a report by Mrs. May's expert that assigned a value for goodwill to his dental practice?15
Yes. The established facts show that the family court judge adopted the dental practice valuation proffered by Mrs. May's expert.19 The facts establish that Mrs. May's expert placed a fair market value on the dental practice at $120,000 which included a value for goodwill.20 The facts further establish that Dr. May operated a solo dental practice.21
The rule requires that personal goodwill is not subject to equitable distribution.22 Therefore, the family court judge erred in adopting the report that assigned a value for goodwill to the dental practice.23
The family court judge erred in adopting a report by Mrs. May's expert that assigned a value for goodwill to his dental practice.24
Related opinions on this issue
Justice Albright wrote separately to emphasize the importance of the distinction between enterprise and personal goodwill.25 He noted that this distinction provides needed uniform direction for the lower courts.26 This approach decreases the likelihood that future earning capacity will be improperly considered as part of the valuation process while increasing the probability that it will be correctly factored into the determination of alimony.27
Justice Albright also highlighted five commonly used methods for valuing goodwill.28 He stressed that the record must show some reliable evidentiary basis for factual conclusions to withstand appellate review.29
Whether the family court judge erred in the distribution of real property?30
Active appreciation of separate property resulting from an expenditure of marital funds or work performed by the parties during the marriage is marital property subject to equitable distribution.31
No. The established facts show that the family court judge found the real estate involved in the case was marital property that had a net value of $125,324.44. The judge awarded Mrs. May a one-half interest in the value of the real estate.32
The facts indicate that the record supports the family court judge's determination that marital assets were used to increase the net value of the real estate.33 Applying the rule that such active appreciation is marital property, the family court judge did not err in the distribution of the real property.34
The family court judge did not err in the distribution of real property.35