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Marriage of Watts | 217 Cal. Rptr. 301 (1985)

We’ve heard the term goodwill and understand that with respect to businesses, it’s a benefit or advantage that extends beyond the capital value of the business and its property. It represents an expectation that public patronage will continue into the future, but how do courts value goodwill in a dissolution action when one of the spouses has a business? The nineteen eightyfive California case of Marriage of Watts examines this question.

John Watts was a surgeon who worked at a hospital before entering into private practice in nineteen seventyfive. Later that year, when his annual earnings equaled eightyfour thousand five hundred dollars, he married Carol. The couple separated after less than four years of marriage, when John’s annual earnings from his practice were one hundred thirtyone thousand five hundred dollars.

Carol filed for divorce in trial court. After an interlocutory judgment was filed, a hearing was held to address financial matters. During the hearing, John’s experts testified that because John’s practice was inalienable, or couldn’t be sold, it had no goodwill. Although Carol’s expert testified otherwise, the court concluded that because John’s practice couldn’t be sold, its goodwill had no value. Carol appealed, contending that this erroneous conclusion caused an unequal distribution of community assets.

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