Funeral Home Valued | TN Business Valuation Divorce Case
Tennessee business valuation law case summary – funeral home. Tennessee divorce and family law from the Tennessee Court of Appeals.
Erwin v. Erwin, 1988 WL 27249 (Tenn. Ct. App. Mar. 25, 1988).
Frances and Robert Erwin were married in 1958. In 1967, the husband, along with partner J.W. Carr, purchased the stock of a funeral home and the property it occupied. In 1984, Messrs. Erwin and Carr formed a second corporation which purchased a cemetery. Mr. and Mrs. Erwin divorced in 1985. At the time, the wife earned $712 per month, and the trial court found that she was capable of supporting herself.
Mr. Erwin was awarded the interest in the funeral home business, the funeral home property, and the cemetery. The trial court held that these assets were not part of the marital estate, and made a finding that the husband had “spent, many, many hours building the funeral home business into what it is today” and that “one of the primary complaints of [the wife] was the fact that [the husband] spent too much time at the office.” The wife had little involvement in the business, did not have any of the required licenses, and hadn’t been on the payroll of the business.
The wife appealed, and argued that the business should have been included as part of the marital estate. The Court of Appeals agreed. Even though the business was akin to a professional practice, the physical assets and receivables had an independent value, regardless of the owner’s professional status.
At trial, the judge declined to consider the deposition testimony of Robert W. Niker, the executive director of the Illinois Funeral Directors’ Association. This testimony related to the value of the funeral home business. The trial court ruled that Mr. Niker’s testimony failed to take into consideration the stockholder’s agreement under which the husband owned his interest in the business.
The court of appeals disagreed, and held that this evidence was relevant. Mr. Niker’s testimony was relevant to the value of the whole business. Even though the stockholder’s agreement might affect the value of a partial interest, the evidence was still relevant as to the overall value of the funeral home.
Mr. Niker testified that the value of the business was $583,000, and the combined value of the business and the real estate was $800,000. The Court of Appeals considered this evidence.
The trial court also declined to consider the deposition testimony of accountant James Kelly, who determined the value of the business for the husband. The Court of Appeals also determined that this evidence was relevant and considered it. Mr. Kelly testified that the value of the funeral home stock was $268,500.
Finally, the trial court excluded the testimony of Jeff Gamble, but the Court of Appeals considered the evidence. Mr. Gamble testified that in the year prior to the divorce, he had offered $900,000 to purchase the funeral home, the funeral home real estate, and the cemetery. He also testified that he offered to buy the funeral home alone for $600,000, and the cemetery alone for $200,000.
The parties also testified as to the value of the business and his ownership interest. Mrs. Erwin testified that her husband’s share of the funeral home business was worth $291,860, and that his share of the real estate was $150,000.
Mr. Erwin testified that his share of the business was worth $93,000, and his share of the real estate was worth $67,875. He also introduced evidence that his share of the cemetery was worth $30,000. He based his valuation of the business on the most recent agreement between the corporation and the stockholders, which contained a right of first refusal in favor of the corporation. This agreement provided for a value of $37.20 per share, or $93,000 for the husband’s holdings.
Similarly, the stock of the company holding the cemetery had a right of first refusal in favor of the corporation setting the value at $60 per share, or $30,000 for the husband’s entire interest.
The Court of Appeals first noted that these rights of first refusal were of limited relevance in determining the value, because if the true value of the shares was more than the agreed value, the right of first refusal would only have a minimal effect.
After considering the various opinions as to value, the Court of Appeals concluded, with little discussion, that the value of the interest in the funeral home business was $175,000.
An appraisal of the funeral home real property by William Gooch showed a value of the real property of $271,750. (It was unclear from the appellate opinion which party had retained this appraiser.) After considering all of the opinions, the Court of Appeals concluded, with little discussion, that the value of Mr. Erwin’s share of the funeral home real property was $115,000.
The Court of Appeals, also with little discussion, considered the various values placed on the cemetery and concluded that Mr. Erwin’s share had a value of $30,000.
After making these determinations as to the value of the business, the Court of Appeals modified the judgment of the trial court in accordance with its holding that the business interests were part of the marital estate.
See original opinion for exact language. Legal citations omitted.
To learn more about Tennessee business valuation law, see Business Valuation in Tennessee Divorce Law. To learn more about the division and valuation of professional practices in divorce, see When Professionals Divorce in Tennessee: Valuing Professional Practices.
Miles Mason, Sr. JD, CPA handles complex divorce matters including business valuations and forensic accounting issues. View his professional biography listing books and articles published on business valuation and forensic accounting, seminars presented to lawyers, judges, business valuation experts, and forensic accountants. Miles Mason, Sr. authored The Forensic Accounting Deskbook: A Practical Guide to Financial Investigation and Analysis for Family Lawyers, published by the American Bar Association. The Miles Mason Family Law Group, PLC’s offices are located in Memphis, Tennessee and serves West Tennessee and Nashville.
