Written by Chris Walton, JDThe husband built a life insurance sales business during the marriage. At dissolution, the tangible assets were worth approximately $140,000. The court-appointed expert valued the business at $1.973 million — nearly fourteen times the tangible assets. The difference was goodwill. The husband argued that the goodwill was really just his future earning capacity in disguise, and that the expert’s DCF improperly captured income he’d earn through post-divorce effort. The husband didn’t retain his own valuation expert. He argued the business should be valued based on his testimony alone.
The Arizona Court of Appeals affirmed the $1.973 million valuation. A dissent by Judge Kiley would have accepted the husband’s testimony and valued the business at $240,000.
Brooksby v. Brooksby (Ariz. Ct. App. July 24, 2025) is the newest addition to an old debate, and it matters for practitioners in Arizona and beyond because it clarifies the one line that determines whether a sales-driven business has millions in divisible goodwill or nominal value: the line between goodwill cultivated during the marriage and the owner’s capacity to earn income after it ends. The expert who draws that line with a defensible methodology wins. The owner-spouse who asserts the line without retaining an expert loses.
Before understanding Brooksby, you need to understand what makes Arizona different from most of the states in our family law article series. In Florida (Donahue), Washington (McLelland), and the majority of states that address the question, the critical distinction is enterprise goodwill (divisible) versus personal goodwill (not divisible). If the goodwill is tied to the individual practitioner’s reputation and relationships, it’s separate property. If it’s tied to the business itself, it’s marital.
Arizona rejected that framework in Mitchell v. Mitchell (1987). The Arizona Supreme Court held that all goodwill — enterprise and personal — is community property subject to equitable distribution: “We prefer to accept the economic reality that the goodwill of a professional practice has value, and it should be treated as property upon dissolution of the community, regardless of the form of business.” The court reasoned that goodwill cultivated during the marriage, whether attributable to the entity or to the individual, represents the economic return on community labor and should be divided as community property.
This means the enterprise/personal distinction that drives the analysis in most states is irrelevant in Arizona. The fight in Arizona is different: it’s between goodwill (the value of continued patronage from client relationships cultivated during the marriage, which is community property regardless of whether it’s personal or enterprise) and post-divorce earning capacity (the owner’s ability to generate future income through effort after the marriage ends, which is not divisible). That’s the line Brooksby litigated.
The court-appointed expert valued the business at $1.973 million using a DCF analysis. The methodology had three steps that together operationalize the goodwill/earning-capacity distinction.
Step one: project future income from historical results. The expert used the business’s historical financial performance to project future cash flows. For a life insurance sales business, the revenue base includes renewal commissions on the existing book of policies and new business production. The historical results reflect both components.
Step two: deduct reasonable annual compensation for the husband. This is the critical adjustment. Before discounting the projected cash flows to present value, the expert subtracted a reasonable salary — the amount the husband would earn if he performed the same work for someone else. The deduction removes the husband’s personal earning capacity from the income stream. What remains after the deduction is the excess earnings — the income the business generates beyond what the owner’s labor alone would produce.
Step three: discount the remaining cash flows to present value. The excess earnings, projected forward and discounted at an appropriate rate, produced the $1.973 million figure. The expert concluded that the large gap between the tangible asset value ($140,000) and the total business value ($1.973 million) represented goodwill — primarily from the husband’s personal client relationships developed during the marriage.
The majority held that this methodology properly excluded future labor. Because the DCF removed a reasonable post-divorce salary from the cash-flow projections before capitalizing, the resulting value did not capture the husband’s post-divorce earning capacity. Even though the goodwill was personal — attributable to the husband’s individual client relationships — those relationships were cultivated during the marriage, making the goodwill community property under Mitchell.
Judge Kiley disagreed with the majority and would have valued the business at $240,000, based on the husband’s own testimony. The dissent raised an objection that practitioners should take seriously even though the majority rejected it: the expert’s projected cash flows still incorporated the husband’s post-divorce work efforts because they did not separate goodwill arising from marital-period clients and referrals from goodwill dependent on generating new business after the divorce.
Here’s the analytical distinction the dissent was drawing. The existing book of life insurance business — policies already sold during the marriage, generating renewal commissions — represents the economic return on marital labor. A buyer acquiring that book would receive those renewal streams without the husband’s further effort. That’s community goodwill.
But the DCF also projected future income that included growth — new policies the husband would sell after the divorce, new clients he’d acquire, new commissions he’d earn through post-dissolution effort. The owner compensation deduction removes a salary for the husband’s labor, but it doesn’t remove the fruits of that labor from the projections. If the projections assume the business continues growing through new sales, the DCF is capitalizing income that depends on the husband’s post-divorce work — even after deducting his compensation for performing it.
Judge Kiley argued this conflated goodwill with future earning capacity in violation of Arizona precedent. The husband’s testimony that the business was worth $240,000 — presumably closer to the tangible assets plus the value of the existing renewal stream without growth — would have excluded the post-divorce production component.
The majority disagreed, finding the expert’s methodology sound. But the dissent’s framework identifies the pressure point every opposing counsel will exploit: are the projected cash flows in the DCF coming from existing patronage (marital goodwill) or from new business the owner will generate through post-divorce effort (non-divisible earning capacity)?
The husband in Brooksby did not retain his own valuation expert. He argued the business had minimal divisible value based on his own testimony. The trial court had the court-appointed expert’s $1.973 million DCF analysis on one side and the husband’s unsupported assertions on the other.
This is the same dynamic that decided Naiman v. Naiman in Ohio (where the husband’s expert’s $352,000 valuation was entirely rejected in favor of the wife’s expert’s $26,000), but in reverse: in Naiman, the losing expert failed to account for transferability restrictions. In Brooksby, there was no opposing expert at all. The court had one credible analysis and one party’s testimony. The credible analysis won by $1.73 million.
For owner-spouses in Arizona: if you believe the court-appointed expert’s valuation is too high, you need your own expert to demonstrate why. Testimony from the business owner — who has an obvious interest in minimizing value — is not a substitute for a credentialed appraiser who can model the existing renewal stream separately from projected new business, apply an appropriate owner compensation deduction, and present an alternative value the court can adopt. Judge Kiley’s $240,000 figure came from the husband’s testimony. If the husband had retained an expert who modeled the dissent’s framework — valuing only the existing book without growth projections — the outcome might have been different. The majority opinion might have been the dissent.
Brooksby occupies a specific niche in the goodwill conversation because of Arizona’s unusual rule. In most states, the question is whether goodwill is enterprise (divisible) or personal (separate). In Arizona, all goodwill is community property. The question is whether the valuation captures goodwill or future earning capacity.
For practitioners in enterprise/personal states (Donahue in Florida, McLelland in Washington, Fair in Louisiana), Brooksby is useful for a different reason: the owner compensation deduction methodology the court-appointed expert used is the same mechanism those states use to separate enterprise goodwill from personal earning capacity. The analytical tool is identical even though the legal framework is different. Deducting reasonable owner compensation before capitalizing removes the personal component — whether you’re removing it because it’s non-divisible personal goodwill (Florida) or because it’s non-divisible future earning capacity (Arizona).
For practitioners in Arizona: Brooksby confirms that Mitchell is alive and well. Personal goodwill cultivated during the marriage is community property. The owner-spouse’s only defense is to show that the valuation captures post-divorce earning capacity rather than marital goodwill — and the dissent’s framework (separate existing-book renewal income from new-business growth) is the analytical tool for making that argument. But you need an expert to do it. Testimony from the stand won’t get you from $1.97 million to $240,000.
Not every Arizona business-valuation divorce requires a goodwill fight. If the business has no income above what the owner would earn as an employee elsewhere — if the owner compensation deduction consumes all of the cash flows — there is no excess earnings and no goodwill to divide. The business’s value is its tangible assets, and the owner’s income is earning capacity, not goodwill.
Conversely, if the business has a readily identifiable book of renewal business with strong persistency, the goodwill is obvious and the fight is about the number, not the concept. The expert values the renewal stream, deducts owner compensation, and presents the difference as community goodwill. The opposing side’s remedy is to retain their own expert and contest the projections, the compensation deduction, and the discount rate — not to argue that personal goodwill is non-divisible in Arizona. After Mitchell and now Brooksby, that argument is settled.
The court-appointed expert in Brooksby produced a $1.973 million valuation of a life insurance business with $140,000 in tangible assets. The $1.83 million gap was goodwill — personal goodwill, attributable to client relationships the husband cultivated during the marriage. Arizona law says that’s community property. The husband’s argument that it was really future earning capacity failed because the DCF deducted a reasonable owner salary before capitalizing, and because the husband didn’t retain an expert to demonstrate that the projections included post-divorce growth dependent on his personal effort. The dissent would have accepted $240,000. The majority chose $1.97 million. The difference — $1.73 million — is the cost of not retaining an expert.
For family law attorneys: if your client is the owner-spouse in Arizona, the personal goodwill defense that works in Florida and Washington doesn’t work here. Your defense is that the valuation captures post-divorce earning capacity, and you need an expert who can model the existing book separately from projected new business to make that argument. If your client is the non-owner spouse, Brooksby is your authority that a properly constructed DCF with an owner compensation deduction captures divisible goodwill, even when that goodwill is entirely personal. In Arizona, personal goodwill is property. The question is whether the expert measured it correctly.
If you’re handling a divorce involving a sales-driven or relationship-driven business in Arizona and need to determine where goodwill ends and future earning capacity begins, happy to talk through the valuation approach. The owner compensation deduction and the projection assumptions are usually where the case is decided.
Schedule a free consultation meeting to discuss your valuation needs.
