Texas Divorce Attorney Blog
The court must divide marital property in a just and right manner in a Texas divorce. In some cases, the parties only have tangible or clearly identifiable assets such as real estate and back accounts. In other cases, however, there may be more abstract assets involved. A former wife recently challenged a property division, arguing the court had not properly divided the assets in light of the husband’s sale of commercial goodwill.
The Husband’s Agreement
The parties got married in 1998. The husband worked as a financial advisor starting in the early 2000s. He entered into a “Non-Compete Representative Agreement” with a financial services company in late 2014. The agreement stated he would solicit security purchases as an independent contractor of the company and be compensated on a commission basis. He earned 35% for business written after June 1, 2014, and 52% for business written before April 1, 2014. He could increase his earning to 64% for business written before April if the “net GDC” was greater than $700,001. The agreement also provided that the husband could only continue business with the clients listed in Exhibit B after the agreement was terminated, but no Exhibit B was generated.
The divorce decree was signed at the end of February 2023. The court found the right to receive a greater commission for business written before April 1, 2014 was not a material asset to be divided but was income earned for services and constituted the husband’s “future separate property.” The court also found no commercial good will was transferred to the company because of the husband’s employment with the company or the agreement.
The Wife’s Appeal
The wife appealed, arguing the court abused its discretion by failing to make a just and right property division with regard to the sale of commercial goodwill.
The appeals court distinguished between personal goodwill, which is not part of the community estate, and commercial goodwill, which can be part of the community estate. Personal goodwill includes confidence in the abilities and skills of a professional. Commercial goodwill, on the other hand, is separate from the individual’s own skills, abilities, and reputation.
The wife argued the agreement “unambiguously” required the husband to convey his commercial goodwill to the company. She argued that the larger compensation for the “Legacy” clients was proof that the compensation was consideration for those clients. Her expert concluded there was a 32-point premium for the husband’s “Legacy” clients as opposed to new clients. The expert concluded this difference was based on the sale of the husband’s client book to the company and that a higher percentage was “the industry norm” in selling clients. The expert could not, however, explain why the husband would get the same percentage for selling his clients as for obtaining and maintaining clients.
The husband denied selling a client list to the company. He was asked about proceeds from the sale of clients and said “I don’t know.” He testified that the compensation terms were intended to be “in line with a typical advisor.” He said the difference in payment for Legacy and new clients was just what the parties had agreed upon. He also stated the agreement had an intended overall formula around 50/50. He further testified that he had to keep providing services to the clients to earn commissions. His witness testified that any goodwill for the client list would be related to husband’s expertise.
The wife argued “the only reasonable interpretation” of the husband receiving more for existing clients than new ones was that he was being paid for assigning those existing clients to the company. The appeals court identified two issues with the wife’s argument. First, there was no evidence the husband actually received additional compensation. Second, the appeals court rejected the wife’s argument that the greater percentage for Legacy clients necessarily represented sale value. The trial court was charged with determining the weight and credibility of the evidence before it, including the explanation for why there were different percentages for Legacy and new clients. Additionally, the trial court could have concluded, based on the husband’s testimony, that the sale of clients to the company would not have any value without the husband’s continued use of his personal goodwill to maintain the relationships. Therefore, evidence of a substantive and probative character supported the trial court’s decision and it had not abused its discretion.
Contact an Experienced Divorce Attorney
In this case, the courts did not find sufficient support for the wife’s argument the husband had sold commercial goodwill. In a divorce involving complex assets such as goodwill or businesses, a skilled Texas divorce lawyer can help identify which assets may be marital property and fight for a just and right division of the marital estate. Call 214.692.8200 to schedule a consultation with McClure Law Group.