## Facts

- James P. Dugan and Rosaleen M. Dugan married in 1958, separated in 1978, and had no children.
- James practiced law through a wholly owned professional corporation; the law practice was a major marital asset.
- In a dual no-fault divorce judgment, the trial court equitably distributed marital property and addressed alimony.
- The trial court valued the marital estate at $606,966 as of the complaint filing date, including real property, cash, and the law practice.
- The court valued James’s law practice at $251,336, including goodwill of $182,725 (a substantial portion of the estate).
- The goodwill valuation used an “excess earnings”/efficiency comparison: James’s practice was compared to a “typical incorporated attorney” with similar gross assets, focusing on the ratio of net income (before tax) to gross receipts.
- The trial court awarded approximately $230,864 to Rosaleen and $376,102 to James.
- The Appellate Division affirmed; the Supreme Court granted review limited to valuation issues concerning James’s interest in the professional corporation.

## Issues

1. Whether goodwill in a lawyer’s professional practice, held through a wholly owned professional corporation, is a marital asset subject to equitable distribution upon divorce.
2. If goodwill is distributable, what limits and methods govern its valuation to prevent speculative awards and duplication of income considered for alimony.

## Decision

- The Supreme Court held that goodwill in a professional practice, including a law practice, may constitute marital property subject to equitable distribution if it can be identified and valued with reasonable certainty.
- The Court cautioned that goodwill valuation must not simply capitalize a professional’s future earning capacity, which would risk treating future income as a present asset.
- The Court required that valuation methods be restrained to reflect the present, market-related value of an existing practice, not a hypothetical lifetime earnings projection.
- The Court affirmed recognition of professional goodwill as distributable property but modified the valuation approach and remanded for revaluation consistent with its guidance, including attention to overlap between goodwill valuation and alimony.

## Legal Principles

- Equitable distribution may include intangible property with discernible economic value acquired during the marriage, including professional goodwill when it is capable of reasonable appraisal.
- Professional goodwill is conceptually the expectation of continued patronage and may contribute to the present value of an ongoing practice beyond tangible assets and accounts receivable.
- Goodwill must be distinguished from earning capacity; valuation that effectively converts anticipated future income into a property award is improper.
- Valuation of goodwill should be grounded in objective, reliable evidence of the existing practice’s market value and structured to avoid speculative figures.
- Courts must avoid double counting by ensuring that the same income stream is not both capitalized into a goodwill award and also used to set ongoing alimony.

## Conclusion

The court recognized that a lawyer’s practice goodwill can be marital property subject to equitable distribution, but required that goodwill be valued as a present, market-based attribute of an existing practice, with safeguards against speculation and duplication of income already accounted for in alimony.


Dugan v. Dugan, 457 A.2d 1 (N.J. 1983)