How to Divide Legal Practices When Tennessee Lawyers Divorce
Dividing Legal Practices & Law Firms when Tennessee Attorneys Divorce
How to Divide Legal Practices When Tennessee Lawyers Divorce
Dividing the value of a legal practice or law firms begins with hiring a business valuation expert experienced with professional practices.
Note: Since this article was originally written, the Tennessee Legislature has enacted new laws impacting valuation. For details, see NEW TN LAW in 2017: Discounts in Business Valuations Allowed. For additional reference, see our Tennessee Family Law Blog’s Business Valuation category for legal updates, analysis, and case law summaries.
Just as a medical practice, a legal practice is often considered marital property in Tennessee, which makes its value subject to division between two parties in a divorce. When determining whether to split the value of a legal practice, the court will examine the opposing spouse’s contribution to the practice or marriage, the length of the marriage, and the value of the practice. This article talks about three Tennessee divorce cases that involve attorneys who owned legal practices.
Mr. Quillen was a thrice-divorced successful attorney who owned a legal practice in Nashville. Wright v. Quillen, 909 S.W.2d 804 (Tenn. Ct. App. 1995). Mr. Quillen met his fourth wife when she was twenty-eight and he was fifty-five. Mr. Quillen’s wife was a part-owner of a travel agency when the couple married two years later. Over the course of the marriage, the agency grew into a multi-million dollar corporation with offices in thirty cities. After spending less than a decade together, Mr. Quillen’s wife filed for divorce. Representing himself, Mr. Quillen filed a counter-complaint and an “avalanche” of motions, amendments, and petitions. During this period, the tension between the parties grew and eventually climaxed when Mr. Quillen physically attacked his wife’s attorney during a discovery deposition. Mr. Quillen was held in contempt of court, sentenced to ten days in jail, and disqualified from representing himself.
The trial court held that Mr. Quillen owed his wife alimony of $1,950 per month and child support payments of $3,000 per month. The travel agency was awarded to the wife as separate property, but Mr. Quillen was awarded $500,000 for the increase of the value of the company during the marriage. Mr. Quillen was awarded his legal practice as separate property. The Tennessee Court of Appeals affirmed the trial court’s holding that the legal practice and travel agency were separate property. In addition, the Court of Appeals affirmed the trial court’s alimony and child support awards to Mr. Quillen’s wife. The Court of Appeals agreed with the trial court’s decision to disqualify Mr. Quillen from self-representation, stating that Mr. Quillen was “too emotionally involved in his own case [to continue] to represent himself.” (Citation omitted.)
Mr. Brown and his wife of over twenty-five years enjoyed a luxurious lifestyle from the proceeds of his legal practice, which represented one corporate client almost exclusively. Brown v. Brown, 1990 WL 140912 (Tenn. Ct. App. 1990). Making around $200,000 per year at the time of his divorce, Mr. Brown and his wife had a sizeable income, but virtually no savings. Mr. Brown’s wife supported him through law school by finding work as a teacher, but devoted herself to the home and family after Mr. Brown graduated. During the course of the marriage, Mr. Brown was a “good father” and “wonderful husband” until he had an affair. The wife was demeaning and “exhibited financial irresponsibility”, which greatly hurt Mr. Brown who “appear[ed] to be a sensitive person.” Mr. Brown’s wife filed for divorce, claiming adultery. Although Mr. Brown conceded that he committed adultery, the court noted that there was a prominent “bitterness” between the parties. When the couple divorced, the property to be divided at trial totaled $1,053,783. The total included a residence worth $405,000, retirement funds, Mr. Brown’s legal practice, a Porsche, a Mercedes, an Acura, various investments, $35,000 in residential furnishings, a mink coat, and a Rolex watch. The debts of the couple totaled $382,100 and included a mortgage, car payments for the Porsche and Acura, debt to a retirement trust, and credit cards.
The trial court ordered the sale of the residence to pay the mortgage, the debt on the Acura, and credit card debts. The husband was awarded the Porsche, the wife was awarded the Mercedes, and the court ordered the conveyance of the Acura to the wife in trust for the daughter. The law practice was included in the total valuation of property as a marital asset, the residential furnishings were divided between the parties, the wife was awarded the mink coats, and the husband was awarded the Rolex watch. Due to the wife’s economic disadvantage and her likely inability to find a job after divorce, the trial court awarded alimony for $3,000 per month that would be decreased to $2,500 per month after two years. The trial court also held the husband should make child support payments of $1,500 per month. The Tennessee Court of Appeals affirmed the trial court’s valuation of the legal practice, the division of the retirement trust, and valuation of the marital residence. Despite evidence introduced by the husband that his income would soon be drastically reduced (due to an economic downturn that affected his sole client’s business), the Court of Appeals affirmed the trial court’s alimony award to the wife. Similarly, the Court of Appeals affirmed the trial court’s award of child support.
Mr. Day, an attorney who owned a legal practice, entered into a marital dissolution agreement (“MDA”) with his wife in 1999. Day v. Day, 2002 WL 13036 (Tenn. Ct. App. 2002). Instead of taking the divorce to trial, both parties signed the MDA, which valued and divided the assets of the parties and detailed a child custody agreement. The MDA valued Mr. Day’s interest in his legal practice at $22,500, Mr. Day’s pension fund at $185,000, and set Mr. Day’s child support payments at $4,000 per month. Less than a week after the MDA was approved by the court, Mr. Day’s law firm received a $950,000 judgment from a class action lawsuit. Mrs. Day and her attorney were not aware of the pending judgment at the time the MDA was signed.
When Mr. Day’s wife became aware of the $950,000 judgment, she petitioned the court for relief from portions of the MDA, including the child support arrangement, division of property, and alimony payments. Mr. Day moved for summary judgment. The trial court did not find a basis for reopening the alimony and division of property agreements, but denied Mr. Day’s motion because the issues were intertwined with the child support agreement. However, the trial court found that Mr. Day did not act fraudulently by failing to disclose the pending $950,000 judgment. The Tennessee Court of Appeals granted Mr. Day summary judgment. The Court confirmed the MDA child support agreement, finding that it was “based upon existing facts then known to both of them.” (Citation omitted.) Additionally, the Court of Appeals confirmed the alimony payments and division of property outlined in the MDA. The Court noted that “there is nothing before us demonstrating that Wife could not have ascertained what she alleges are the true facts simply by pursuing diligent discovery.” (Citation omitted.) In the eyes of the Court, Mr. Day’s wife was responsible for her own failure to discover the pending $950,000 judgment.
These cases illustrate the dramatic twists that can occur when an attorney who owns a practice goes through a divorce. Large sums of money, large debts, and personal animosity can all factor into a court’s division of marital property. Like divorces that involve the division of other professional practices, the courts in these cases attempted to impose civility and order by making a legal, just, and equitable division of the marital property.
Read more about Memphis divorce attorney Miles Mason, Sr. JD, CPA. He practices family law exclusively with the Miles Mason Family Law Group, PLC in Memphis, Tennessee. He has taught seminars across the nation on divorce trial practice, professional practice valuation, and forensic accounting to judges, lawyers, CPAs, and business appraisal expert witnesses. Miles authored The Forensic Accounting Deskbook, published by the American Bar Association Family Law Section, which addressed many aspects of valuing professional practices in divorce. For more information, see When Professionals Divorce in Tennessee: Valuing Professional Practices.
