Wife Gets None of Law Firm’s $950K Fee Just After Divorce

Tennessee business valuation law case summary dividing a law practice. Tennessee divorce and family law from the Tennessee Court of Appeals.

Day v. Day – Tennessee Law Firm Valuation Law in Divorce

In January 2002, the Tennessee court of appeals heard the appeal of the divorce of John Day in which his ex-wife Kimberly sought relief from some of the terms of the Days’ divorce decree on the grounds of irreconcilable differences.

In her motion, Mrs. Day charged that there were mistakes in the formula for valuation of Mr. Day’s interest in his law firm and other businesses.  Mrs. Day alleged that the Marriage Dissolution Agreement (“MDA”) failed in several instances, and that the actions of her attorney constituted grounds for reassessing the divorce agreement because of his mistake, inadvertence, surprise or excusable neglect as set out by the rule.  Mrs. Day claimed that because of this, the MDA did not:

• account for any increase in Mr. Day’s pension fund’s value from December 31, 1997, to the date of its execution.  It was worth approximately $185,000 as of that date.
• account for a class action award of $950,000 won by Mr. Day’s law firm.
• account for a receivable of $45,000 owed to the parties as a result of a loan Mr. Day made to his firm on February 16, 1999.
• correctly valued Mr. Day’s interest in his law firm, in that it failed to include the firm’s cash assets, and was not supported by an actual appraisal of the assets of the firm.
• properly value Mr. Day’s interest in Daybreak Communications.
• utilize a proper method of valuation in determining the value of Annapura Records, LLC, which was awarded to Mrs. Day.
• use a formula that differentiated between the separate property component of the husband’s IRA and the marital property part of that asset.

Mrs. Day filed her personal affidavit along with the affidavits of R. Paul Cross, a personal property appraiser, and Richard Blount, a Certified Public Accountant.  Mr. Day’s affidavit lists the detailed efforts he took before the divorce judgment to give Mrs. Day documents and information concerning their financial position, which included information on the class action litigation and its award.

The court of appeals noted that there was no allegation of any of fraud by Mr. Day, but that Mrs. Day claimed that multiple mistakes and inadvertence—not rising to the level of fraud—were made by her former counsel, resulting in errors in the MDA. Mrs. Day also filed a legal malpractice claim against that attorney.

The appellate court also did not find the logic of the trial court convincing as to the relationship of the child support and property valuation issues.  It felt that those issues could be decided independently, and that there was no evidence that demonstrated that Mrs. Day did not have the ability to learn the true facts by more diligent discovery. The ignorance of her attorney was not a basis for relief.  As a result, Mr. Day was entitled to summary judgment as to the remaining allegations of Mrs. Day.

The court of appeals reversed the trial court’s order denying Mr. Day’s motion for summary judgment, and the motion was granted summary judgment regarding re-evaluation of the property and company interests.

Day v. Day, No. M2001-01624-COA-R9-CV (Tenn. Ct. App., 2002).

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 and 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.