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Schneider v. Schneider

January 21, 2005

IN RE MARRIAGE OF EARL M. SCHNEIDER, APPELLANT,
v.
JODI ANN SCHNEIDER, APPELLEE.



The opinion of the court was delivered by: Justice Thomas

Docket No. 97430-Agenda 14-November 2004.

Appellant, Earl Schneider, filed a petition in the circuit court of Lake County seeking the dissolution of his marriage to appellee, Jodi Ann Schneider. The circuit court entered a judgment for dissolution of marriage incorporating its findings and decisions. Among the contested issues at trial was the value of Earl's dental practice. In valuing Earl's dental practice, the circuit court excluded personal goodwill and accounts receivable from the fair market value of the practice. The circuit court also allocated 67% of the marital assets to Jodi, noting the duration of the marriage, the reasonable opportunity of each spouse for the future acquisition of capital assets and income, and that the apportionment of assets was in lieu of maintenance. The circuit court also determined that each party would be responsible for his or her own attorney fees.

[9]     The appellate court affirmed the circuit court in part and reversed in part. 343 Ill. App. 3d 628. The appellate court affirmed the circuit court's holding that each party should be responsible for his or her own attorney fees. However, the appellate court held that personal goodwill and accounts receivable should have been included in the valuation of Earl's dental practice. The appellate court therefore reversed the circuit court's valuation of the dental practice and remanded for a redistribution including those assets. This court then allowed Earl's petition for leave to appeal the appellate court's holding that personal goodwill and accounts receivable should have been included in the valuation of the dental practice. 177 Ill. 2d R. 315.

BACKGROUND

Earl and Jodi were married in August 1985. The parties had three children during their marriage: Ashley, born in 1986; Justin, born in 1989; and Jordan, born in 1991. Earl filed a petition for dissolution of marriage on September 15, 2000. Prior to trial on the petition for dissolution, the parties stipulated that Earl's gross income as a self-employed dentist was $325,000, with a net income of $195,000. In addition, each party waived maintenance, although Jodi later indicated that she had reserved the right to seek a disproportionate share of the assets in light of her waiver of maintenance. Child support was set at $5,400 a month until Ashley attained majority or graduated high school. Thereafter, child support was set at $4,062.25 until Justin attained majority or graduated high school. Child support then was reduced to $3,250 per month until Jordan attained majority or graduated high school. The tax exemptions for the children were allocated to Earl, and Earl agreed to pay the children's health insurance. Jodi was awarded sole custody of the children.

At trial, Jodi testified that she graduated from college in 1981 with a B.S. in accounting. She became a CPA in 1983. After graduating, Jodi began working full time as a staff accountant for Warady and Davis. Jodi was promoted to supervisor when she was pregnant with Ashley. Jodi continued to work full time until Ashley was born in 1986. Over Earl's objections, Jodi then worked part-time until Justin was born. After Justin was born, Jodi stopped working at Warady and Davis pursuant to Earl's request, although she continued to do bookkeeping and payroll taxes for one client, working approximately four hours every three months. In addition, Jodi did the receivables, accounting, payables, bills and insurance for Earl's dental practice from the time he graduated from dental school until approximately the summer of 2000. Jodi testified that had she continued to work full time for Warady and Davis, she would have been promoted to manager and then to partner. Managers earn from $75,000 to $100,000 a year, while partners earn more than $100,000 a year.

Jodi went back to work part-time for Warady and Davis in September 1998, when her youngest child began school. She currently has three clients. Jodi earned a gross income of $4,385.25 in 2000. From January through October 2001, Jodi had grossed approximately $5,800. Jodi testified that she earns $30 an hour at Warady and Davis.

Earl testified that on March 24, 1987, he entered into an employment agreement with Jack E. Taub, D.D.S., Ltd., an Illinois professional corporation. Pursuant to the employment agreement, Earl was to receive a monthly salary equal to 40% of the net collections of his monthly billings. On August 24, 1987, Earl entered into a second employment agreement with Jack E. Taub, D.D.S., Ltd., which provided for a monthly draw of $4,000 through January 31, 1988, and on a year-to-year basis thereafter, provided Earl had purchased certain shares of Jack E. Taub, D.D.S., Ltd. Also on August 24, 1987, Earl entered into a stock purchase and redemption agreement with Dr. Taub and Jack E. Taub, D.D.S., Ltd. Earl testified that he purchased the dental practice from Dr. Taub in 1987 for $350,000, although agreed interest payments brought the total cost to $550,000. Dr. Taub agreed to stay at the practice for 30 months, and also agreed to a five-mile radius non-compete provision. Earl testified that he did not lose any of Dr. Taub's patients following the transition, and that the practice's current gross income was approximately $800,000 a year. Jodi claimed that the total purchase price for the business was $650,000.

As noted, at trial on the petition for dissolution, the parties contested the valuation of Earl's dental practice and the allocation of marital property. Earl's expert witness, Stephen Mareta, testified that the fair market value of the dental practice was $346,300. Of this amount, Mareta attributed $311,300 to personal goodwill and $35,000 to fixed assets. The fixed assets included property and equipment, but did not include cash on hand, accounts receivable, cash surrender value of life insurance, and loans due from officers. Mareta testified that the accounts receivable were merely a reflection of future income.

Jodi's expert witness, Bruce Richman, testified that the fair market value of the dental practice was $481,000. Richman attributed $144,413 to tangible assets, including accounts receivable, furniture and equipment, cash surrender value of insurance, and inventory. Richman attributed the remaining $336,587 to intangible assets, although Richman stated that those intangible assets did not include personal goodwill. Richman described the intangible assets as including dental records, the leasehold interest, a trained work force, intellectual property, trade names and enterprise goodwill.

On January 23, 2002, the circuit court entered its findings and decision. The circuit court valued Earl's dental practice at $38,300. This amount included $8,000 in inventory and $30,330 in furniture and equipment. The circuit court did not include accounts receivable, cash on hand, cash surrender value of life insurance, and loans due from officers in the valuation, accepting Earl's argument that including those items in the valuation would result in a double counting of those assets. In addition, the circuit court held that any goodwill that existed in the practice was personal goodwill that should not be included in determining the fair market value of the dental practice. The circuit court stated that Jodi's expert witness had failed to establish the existence of any enterprise goodwill in the practice.

The circuit court next addressed each party's request for contribution toward attorney fees. The circuit court noted that both parties had been extremely litigious and "quarrelsome" during the entire process, and that each had been unreasonable from time to time, resulting in an unnecessarily expensive divorce. The circuit court held that legal fees would not be based upon the misconduct or litigiousness of the other party because both parties were equally guilty of such conduct. The circuit court then considered the factors set forth in section 503 of the Illinois Marriage and Dissolution of Marriage Act (Dissolution Act) (750 ILCS 5/503 (West 2000)), as well as the allocation of marital property and debt, and held that each party should be responsible for his or her own legal fees and costs.

The circuit court then allocated 67% of the marital assets to Jodi and 33% to Earl, for an approximate distribution of $326,000 to Jodi and $161,000 to Earl. The circuit court stated that in determining the allocation of marital assets, it found that the following factors weighed heavily in favor of a disproportionate allocation: the duration of the marriage (750 ILCS 5/503(d)(4) (West 2000)); whether the apportionment of assets was in lieu of or in addition to maintenance (750 ILCS 5/503(d)(10) (West 2000)); and the reasonable opportunity of each spouse for future acquisition of capital assets and income (750 ILCS 5/503(d)(11) (West 2000)). The circuit court then entered a judgment for dissolution of marriage on March 4, 2002, incorporating its findings and decision. The circuit court subsequently denied Earl's motion for reconsideration.

Earl then appealed the circuit court's judgment and Jodi filed a cross-appeal. Earl later filed a motion to dismiss his appeal, so that only Jodi's cross-appeal remained pending. Relevant to the instant case, Jodi argued on appeal that the circuit court had erred in its valuation of Earl's dental practice and thus in its ultimate distribution of the marital property. Jodi argued that the circuit court should have included goodwill, accounts receivable, loans due from officers, cash surrender value of insurance policies, and cash on hand in its valuation of the dental practice. Jodi also argued that the circuit court should have ordered Earl to contribute to her attorney fees.

The appellate court, with one justice dissenting, reversed the circuit court in part. 343 Ill. App. 3d 628. The appellate court found that the circuit court erred in excluding personal goodwill from the valuation of Earl's dental practice. 343 Ill. App. 3d at 636. The appellate court acknowledged that this court, in In re Marriage of Zells, 143 Ill. 2d 251 (1991), held that personal goodwill is not to be considered a divisible marital asset. 343 Ill. App. 3d at 635. The appellate court concluded, however, that if goodwill is not considered as part of a spouse's income-generating ability relative to a maintenance award, it may be considered in the valuation of a professional practice as a divisible marital asset. 343 Ill. App. 3d at 636. In addition, the appellate court held that accounts receivable are business assets and should have been included in the valuation of the dental practice. 343 Ill. App. 3d at 637. Likewise, the appellate court found that the circuit court erred in not including the cash on hand, cash surrender value of insurance policies and loans due from officers in determining the fair market value of the dental practice. 343 Ill. App. 3d at 637. The appellate court therefore reversed the circuit court's property distribution and remanded to the circuit court for a redistribution including the items of marital property that were erroneously omitted from the original judgment for dissolution. 343 Ill. App. 3d at 637. Finally, the appellate court held that the circuit court did not abuse its discretion in determining that Jodi was able to pay her own attorney fees. 343 Ill. App. 3d at 638.

Justice Bowman, dissenting, disagreed with the majority's conclusion that the circuit court erred in not including personal goodwill in the valuation of Earl's dental practice. 343 Ill. App. 3d at 638 (Bowman, J., dissenting). Justice Bowman stated that the majority's holding was contrary to the language expressed by this court in Zells. 343 Ill. App. 3d at 638 (Bowman, J., dissenting). Justice Bowman noted that the circuit court considered both Jodi's waiver of maintenance and the future income generating ability of each party in awarding Jodi a disproportionate share of the marital assets. 343 Ill. App. 3d at 639 (Bowman, J., dissenting). In addition, the circuit court based its child support award on Earl's income from his dental practice. 343 Ill. App. 3d at 639 (Bowman, J., dissenting). Justice Bowman concluded that, because the personal goodwill of Earl's dental practice was reflected in the child support award, any additional consideration of goodwill in the valuation of his dental practice would be duplicative and improper. 343 Ill. App. 3d at 639 (Bowman, J., dissenting), quoting Zells, 143 Ill. 2d at 256.

Earl then petitioned this court for leave to appeal from the appellate court's holding that goodwill and accounts receivable should have been included in the valuation of his dental practice. This court allowed Earl's petition for leave to appeal. 177 Ill. 2d R. 315. Jodi cross-appealed, again challenging the circuit court's failure to order Earl to pay her costs and attorney fees. Jodi also argues on cross-appeal that if this court finds that goodwill and accounts receivable were properly excluded from the ...


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