Doctor’s Wife Failed to Introduce Evidence of Value Added to Practice
Tennessee business valuation law case summary – Medical Practice. Tennessee divorce and family law from the Tennessee Court of Appeals.
Hartman v. Hartman – Tennessee Divorce Business Valuation Law – Medical Practice and Appreciation of Separate Property
In Tennessee Court of Appeals case Hartman v. Hartman, the main issue on appeal was whether the wife proved that her husband’s medical practice was marital property by showing an increase in the value of the practice during the marriage. Donna and Patrick Hartman were married to each other twice. The couple divorced for the first time in 1988. Mr. Hartman’s medical practice was awarded to him as his separate property, and he then purchased a house with money he was awarded in the first divorce. However, the parties rekindled their romance and remarried each other in 1992 following a period of cohabitation. The Hartman’s continued to live in the house Mr. Hartman had purchased after the first divorce.
From 1993 to 1997, Mrs. Hartman worked between 30 to 60 hours a week without pay at her husband’s medical practice. In November 1997, Mr. Hartman closed his medical practice due to a loss of hospital privileges as well as a substantial decline in his practice. Mrs. Hartman filed for divorce in July of 1999. Pursuant to an order entered on August 1, 2000, the parties were granted a divorce. However, all issues relating to the marital assets and property were reserved for further hearings.
Finally, in February of 2003, the trial court ruled that Mr. Hartman’s medical practice should be considered a marital asset rather than separate property since his wife contributed to the ongoing success of the practice by working there without pay for four years. The court decided that Mrs. Harmon was entitled to her distributive share of the practice which was determined to be $75,000 for her four years of labor at her husband’s medical practice without financial compensation.
Mr. Hartman filed an appeal challenging the trial court’s classification of his medical practice as a marital asset and the $75,000 award to his ex-wife based on her contributions to the practice. Mr. Hartman argued that since he owned his medical practice prior to the second marriage to Mrs. Hartman, the medical practice remained his separate property during the marriage. Additionally, Mr. Hartman he believed that since his practice was separate property, only an increase in the value of his practice and a finding that Mrs. Hartman made a quantifiable, substantial contribution to that increase would be enough to change the classification of his practice to marital property. Mr. Hartman argued that his ex-wife offered no evidence regarding the value of his practice at the beginning and the end of the second marriage, nor did she offer any quantifiable evidence of her contribution to his practice other than the number of hours worked.
The Appellate Court agreed with Mr. Hartman and held that there was insufficient evidence on the trial court record to establish an evidentiary link between Mrs. Hartman’s services to Mr. Hartman’s medical practice and an award of $75,000. Mrs. Hartman offered no evidence of the value of her husband’s practice at the time of the second marriage and there was no evidence of the value of the practice at the time of the second divorce. Consequently, there was no evidence that Mrs. Hartman’s services caused an increase in the value of her husband’s medical practice. The Court believed that based upon the limited record from the trial court proceedings, all that could be determined was that the practice was closed long before the divorce complaint was filed, and that if what was left of the practice had any value, its financial condition was worse than when the parties married for the second time in 1992.
Reiterating Tennessee law, the Court stated that to justify an award to Mrs. Hartman for working 30 to 60 hours per week in her husband’s practice from 1993 to 1997, there needed to be evidence that her efforts substantially contributed to the maintenance and increase of value of the practice. Since no such evidence was introduced, the Court vacated the $75,000 award to Mrs. Hartman.
Hartman v. Hartman, No. M2003-00805-COA-R3-CV (Tenn. Ct. App. Dec. 30, 2004).
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. The Miles Mason Family Law Group, PLC’s offices are located in Memphis, Tennessee and serves West Tennessee and Nashville. Contact us today at (901) 683-1850.
