## Facts

- John A. Rathmell and Mary Ann Rathmell Morrison divorced after more than twenty years of marriage and executed a negotiated property settlement approved and incorporated into an October 1, 1975 divorce decree.
- Community stock in two closely held insurance agencies (Rathmell Co. and John Rathmell Company, Inc.) was awarded to John, subject to a remainder interest for the children in a portion of shares in one corporation.
- In October 1977, John sold the agencies for substantially more than the book value used in the 1975 settlement.
- Mary Ann filed an equitable bill of review seeking to set aside or revise the divorce property division, alleging John (1) misrepresented the agencies’ value, (2) failed to disclose pre-divorce sale negotiations, and (3) coerced her into signing the agreement by threats.
- A prior summary judgment against Mary Ann was reversed on appeal and remanded for trial.
- On remand, the case was tried in two phases: a jury found for Mary Ann on fraud/nondisclosure/coercion issues, and a bench trial then valued and divided property and awarded Mary Ann $3,000,000, leaving the rest of the 1975 decree in effect.
- Valuation evidence indicated John was a key figure in the agencies’ success, but there was also evidence the businesses functioned as more than a one-person practice (e.g., customers used the company for competitive pricing and service rather than John’s personal participation).
- The trial court’s valuation did not expressly allocate between enterprise goodwill (business goodwill independent of a particular person) and personal goodwill tied to John’s reputation, skills, and continued services.

## Issues

1. Whether the proof satisfied the requirements for equitable bill-of-review relief from a final divorce decree based on alleged fraud, nondisclosure, and coercion.
2. Whether the trial court erred by valuing the insurance agencies without separating divisible enterprise goodwill from nondivisible personal professional goodwill.
3. Whether the $3,000,000 award could stand given the valuation approach and the treatment of goodwill.

## Decision

- The Court of Appeals reversed the $3,000,000 judgment and remanded for further proceedings.
- The court held the judgment could not stand because the valuation methodology improperly treated goodwill without separating enterprise goodwill from personal professional goodwill.
- The court indicated that any post-decree property relief tied to business value must rest on a legally proper valuation of community assets, including a distinct treatment of goodwill components.

## Legal Principles

- A bill of review is an extraordinary equitable remedy that generally requires proof of (1) a meritorious claim or defense, (2) prevention from fully and fairly presenting it due to the opposing party’s fraud/wrongful conduct (or official mistake), and (3) lack of fault or negligence by the complainant.
- In valuing a closely held business for marital-property purposes, enterprise (commercial) goodwill may be a divisible property interest, while personal professional goodwill dependent on an individual spouse’s personal attributes and continued services is not.
- A valuation that fails to segregate enterprise goodwill from personal goodwill is legally defective when used as the basis to divide community property or award monetary relief.

## Conclusion

The appellate court set aside the $3,000,000 bill-of-review award and remanded because the business valuation did not distinguish enterprise goodwill (potentially divisible) from John’s personal professional goodwill (not divisible), a separation required for a valid marital-property valuation and resulting judgment.


Rathmell v. Morrison, 732 S.W.2d 6 (Tex. App.—Houston [14th Dist.] 1987)