Security Co Valued at $400K After Divorce Sold for $5.5 Mil.

Tennessee business valuation law case summary – Security & Alarm company. Tennessee divorce and family law from the Tennessee Court of Appeals.

Duncan v. Duncan – Tennessee Divorce Business Valuation Case

This case involves an appeal from a wife’s post-divorce motion requesting relief from the valuation of her ex-husband’s business.  Joseph and Angela Duncan married in January, 1951 and raised three children together.  Angela Duncan worked at her family’s dry cleaning business and Joseph Duncan started a security and alarm business, Security Alarms and Services, Inc., in 1966 with co-owner Charles Brooks. However, after thirty years of marriage, in 1981, Angela Duncan filed for divorce on the grounds of cruel and inhuman treatment after she discovered her husband’s affair with another woman.

The value of Mr. Duncan’s interest in his security and alarm business was the most hotly contested issue during the divorce.  Mrs. Duncan’s accountant testified that Mr. Duncan’s share of the business was worth $1.25 million, while Mr. Duncan’s accountants testified that the value of his share of the business ranged between $250,000 and $400,000. Mr. Duncan never testified as to his own opinion of the value of his company.

The divorce court valued Mr. Duncan’s share of his business at $400,000, and the Duncan divorce was finalized in September 1982.  Mrs. Duncan appealed the trial court’s decision, but while the appeal was pending she discovered that her ex-husband and his business partner had sold their security and alarm business for $5.5 million.  The $2.5 million Mr. Duncan received for his share of the business was six times more than the business valuation determined by the trial court.  Unhappy with the inequity, Mrs. Duncan filed a motion to set aside the value originally placed on the business, alleging that her ex-husband had fraudulently misrepresented the value of his business during their divorce trial.

The facts relating to Mr. Duncan’s sale of his business confirmed that around the beginning of his divorce trial, Mr. Duncan and his business partner Mr. Brooks, considered selling the company within the next few years because of Mr. Brooks’ health problems. In July, 1982, Mr. Duncan contacted business associate Franklin C. Cole regarding the types of financial information a prospective buyer would likely need.  Mr. Duncan received a questionnaire which he completed and returned to Mr. Cole a month later. At that time, Mr. Cole was employed by another company, but expressed to Mr. Duncan that his new company was interested in buying his security and alarm business. In August, 1982, Mr. Duncan and Mr. Cole signed a standard non-disclosure agreement in order to prevent the release confidential financial information.  However, business negotiations concerning the sale of the business did not begin with any potential buyer until November 1982, two months after his divorce was finalized. After negotiating and receiving competing offers from a few interested buyers, Mr. Duncan and Mr. Brooks finally sold their company to Mr. Cole in April, 1983 for $5.5 million.

The trial court denied Mrs. Duncan’s motion to set aside the divorce court’s original $400,000 valuation of her ex-husband’s business, since a seller’s market did not come into existence until after the divorce was finalized, at which point in time several companies began to express an interest in acquiring Mr. Duncan’s business, which drove the sale price far beyond expectations at the time of the business valuation during the divorce proceedings. The appellate court affirmed the trial court’s decision to deny post-judgment relief, since Mrs. Duncan offered no direct proof that Mr. Duncan perjured himself or withheld information at the time of the divorce trial.

Duncan v. Duncan, 789 S.W.2d 557 (Tenn. Ct. App. 1990).

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.