Goodwill in a divorce case?

It can actually be a legal sticking point, which is why a court ruling in which director John McTiernan won back $750,000 in community property previously awarded to his ex-wife is being closely watched as potentially impacting how actors, athletes and other creative professionals value their businesses in divorce cases.

McTiernan, director of “Die Hard” and “The Hunt for Red October,” had appealed a judge’s ruling that awarded Donna Dubrow goodwill associated with his career as one of the most successful Hollywood directors in the past decade.

When applied to a divorce, goodwill is a critical tool in measuring the value of a business when there is a major difference between how much more a highly successful ex-spouse makes compared to others in the same profession.

In reversing a lower court’s award of $750,000, two of the three judges in the state appellate panel concluded that McTiernan and other movie directors should be exempt from paying goodwill because their professional success has no divisible assets and is based solely on talent, which cannot be transferred to an ex-spouse.

Lawyers say that the McTiernan ruling the first to address the issue of goodwill for movie directors could have significant impact on other divorcing creative professionals.

“It’s been fuzzy and unpredictable as to what a court would do in these situations in the past,” said Cary Goldstein, a divorce lawyer in Beverly Hills. “Now, we’ll have some consistency on this issue.”

Directors and doctors


In general, goodwill has been applied to divorces involving business owners and professionals such as accountants, doctors, lawyers and architects.

“It does come up a lot, especially with doctors,” said Arthur De Vany, professor emeritus of economics at the University of California at Irvine, who testified for Dubrow in calculating McTiernan’s goodwill. “He’s in his practice, fresh out of medical school, and the wife is there, helping him work his way through college. Then he meets some hot nurse and has a big income and splits.”

But no California court has clarified whether the same rules apply in cases involving creative professionals, such as movie directors. That’s because many high-profile Hollywood divorces settle out of court.

According to California law, “the ‘goodwill’ of a business is the expectation of continued public patronage” and is “property and is transferable.” The judges in the McTiernan case used this to explain why his work as a director was not a “business” that is, his work was not part of “a professional, commercial or industrial enterprise with assets, i.e., an entity other than a natural person,” according to the ruling.

Courts in other states have ruled otherwise.

In a 1989 landmark case in New Jersey, comedian Joe Piscopo lost his argument against paying goodwill in his divorce from Nancy Piscopo, his wife of 12 years. He claimed that his success as an entertainer was not like a professional business because it was too volatile economically, involving talent and personal attributes rather than educational background.

Lavish Lifestyle


In the McTiernan case, Dubrow had argued that her ex-husband’s per film fee rose from $450,000 to more than $6 million during the time they were married.

That type of income helped them lead a lavish lifestyle that included two ranches, a seven-passenger jet plane and “first-class, four-star amenities all over the world,” court papers say.

In the divorce, Dubrow argued that she was entitled to part of her ex-husband’s extraordinary professional success. She cited several other cases in which goodwill was awarded to the spouses of a well-paid dentist, attorney and private investigator.

“Every doctor has to deal with the problem,” said her lawyer, William Litvak, a partner at Dapeer Rosenblit & Litvak LLP. “The suggestion is being made that somehow the marquee doctor with surgical hands is different from the marquee director. I don’t see the distinction.”

In 2002, a Los Angeles Superior Court judge agreed and valued McTiernan’s goodwill at about $1.5 million, half of which Dubrow was entitled to as community property.

But McTiernan argued that the success of a movie director is not the same as a doctor or lawyer because he does not have regular customers, cannot delegate his services to someone else, and does not operate a firm with assets to sell.

In the recent appellate ruling, Associate Justice Paul Boland said: “McTiernan has only his talent as a director, and he cannot transfer it to anyone else. While the occupations of these individuals, like most other occupations, are in common parlance denominated ‘professions,’ they are neither businesses nor professional practices that can be expanded beyond the individual in whom the talent resides.”

Litvak said he has not decided whether to appeal to the California Supreme Court or seek a rehearing.