O'Neil, J.c.c. (temporarily assigned).
When a going business enterprise is being appraised in marital litigation to determine the appropriate equitable distribution, an issue arises whether there is an intangible asset of good will to be evaluated. However, in recent marital litigation instances have multiplied where witnesses appearing to have expertise project widely differing values, based on differing theories of the nature of good will or at times without any theoretical justification at all. The attempts in the present case to assign or deny value to any element of good will in defendant-husband's law practice suggest again the need to begin some public review of the available precedents dealing with good will so as to develop some current judicial consensus on the point. The other issues in the case have no precedential significance.
The husband was admitted to the New Jersey bar in 1953 before the parties' marriage in 1956. He was then and continues to be a single practitioner, specializing in federal tax matters. Until quite recently he employed only clerical
help, but in the last year he has engaged an associate and incorporated as a professional association.
The parties separated in 1972 and the wife's divorce complaint was filed in 1974. After a trial involving 11 different days judgment of divorce was entered in May 1977 on the eve of the trial judge's retirement. The judgment also adjudicated an appropriate distribution of the real estate and most of the personal property owned by the parties, using 1976 values. However, it reserved for further attention and later decision the value of the husband's law practice and the appropriate distribution to be made respecting it. Prior to the judgment defendant had testified to the financial details of his practice and the manner in which he billed and collected, but contended that there was no good will to the practice. An accountant testified for the wife from records of the practice he had examined. Although the trial judge's letter opinion observes that "some of his testimony was based on conjecture, some on assumption," the accountant opined that there was a good will factor in the law practice equal to one to one and a half times the gross annual earnings, an opinion, as the trial court noted, for which no authority was given in support. Because he found that he could not accept either side's opinion on the value of the practice, the trial judge appointed an experienced attorney with a specialization in tax matters as the court's expert to review the practice and report on its value. However, in his letter opinion the judge expressed his own view that defendant had "after all these years only a fair law practice." The record of the net income of the practice as shown on Schedule C of his personal income tax returns supports that impression:
The report of the expert was submitted thereafter and recommended values for the husband's accounts receivable and physical office equipment. As to good will he said this:
The certified public accountant attempted to place a good will value on the law practice. He based his opinion in this regard on practices followed in the accounting profession. I disagree. The courts of this state have consistently held that under the circumstances existing in this case, there would be no good will value to the law practice. It would be otherwise if defendant were a partner in a law firm. This is however not the case herein.
There has yet to be a published holding in a New Jersey marital litigation which distinguishes between a proprietorship and a partnership as to the elements of a business which should be appraised. On the other hand, the Appellate Division has twice effectively generalized that differences of form do not produce different valuation techniques. Scherzer v. Scherzer , 136 N.J. Super. 397 (1975); Grayer v. Grayer , 147 N.J. Super. 513 (1977):
We are satisfied that the manner of valuation of a law practice is not dependent upon its form and hence that the same principles and techniques of valuation apply whether the practice is conducted as a partnership or as a professional corporation. [147 N.J. Super. at 520]
Since Grayer held the same appraisal techniques appropriate for a partnership and a corporation and Scherzer held those for a corporation to be applicable to a proprietorship, the mathematical axiom that things equal to the same thing are equal to each other should equate and not differentiate the techniques applicable to a partnership and proprietorship. The significant element of ...