Division One of the Arizona Court of Appeals issued a decision in In re the Marriage of Walsh on Tuesday which further developed community property law in our state.
In the case, a couple was in the midst of a divorce. The husband, an attorney, owned stock in a large Phoenix law firm. The husband’s agreement with the corporation dictated that he could not redeem the stock for more than $140,000. Because of that, the trial court held that the only interest the husband had in the company was $140,000 because he could not realize any greater sum than that.
The wife appealed, arguing that the court should have considered goodwill which includes factors such as client loyalty that had accrued during the marriage, reputation, and a number of other intangibles.
The appellate court agreed, holding that, although trial courts have wide discretion in what method they choose to valuate a business, they can’t use only the realizable benefits if there was an increase in personal goodwill that occurred during marriage. Put another way, if a spouse improves his or her reputation, client base, client loyalty, experience, etc., then the marital community must be awarded an interest in that improvement.
Read the full opinion here.