Goodwill As Property In a Texas Divorce

May 4, 2007

Goodwill is the intangible, but valuable good reputation that a business builds up over the years. In a Texas divorce in which one of the community assets is a business or partnership, the value of the business goodwill should be considered as an asset that deserves consideration in the property division in the Texas divorce.

Goodwill in Texas is only considered an “asset” if it can be separated from a particular person. If the business is a solo practice such as the professional business of a doctor, lawyer or accountant, the goodwill must exist separate from the individual. Nail v. Nail, 486 SW2d 761.
In situations such as a law practice, the court will not recognize the existence of goodwill unless the person asserting the goodwill presents some evidence that it exists apart from the professional. Hirsh v. Hirsh 770 SW2d 924.
Texas courts have held that where one person does not do all the work themselves, a business could have goodwill apart from the person. Finch v. Finch 825 S.W. 2d 218.
Goodwill that exists separate and apart from a professional’s personal skills, ability and and reputation is divisible on divorce. Rathmell v. Morrison, 732 SW2d 6.
An attorney trying to prove the existence of business goodwill in a Texas divorce has a difficult task, and will likely have to rely on the expert opinion of a professional business appraiser. And in most instances, there is no practical way to divide goodwill. Seeking an offset from other property is the viable solution. If no such property exists, a money judgement and.or lien against the some tangible asset may be the only other alternative.


“Non-refundable” Fees Not Allowed In Attorney Contracts

May 1, 2007

The following is from D. Todd Smith’s blog TEXAS APPELLATE LAW BLOG: 

In Cluck v. Commission for Lawyer Discipline, the Third Court of Appeals has affirmed a summary judgment disciplining a lawyer who deposited $20,000 from a client into his operating account rather than his trust account. The fee agreement described the money as “a nonrefundable retainer” against which the lawyer would bill at his hourly rate.

Lawyers considering charging their clients “nonrefundable” fees should study this case closely to appreciate the difference between what the Court calls a “true retainer” and a mere “advance fee.” Here, contractual language labeling the money “nonrefundable” was not enough to qualify it as a “true retainer,” which the Court defined as a payment “to secure a lawyer’s services, and remunerate him for loss of the opportunity to accept other employment” (quoting Tex. Comm. on Prof’l Ethics, Op. 431, 49 Tex. B.J. 1084 (1986)).