Ear Nose & Throat Medical Practice Valued at $48K in TN Divorce
Tennessee business valuation law case summary – Ear, Nose, Throat Medical Practice. Tennessee divorce and family law from the Tennessee Court of Appeals.
JEAN GARMAN v. GUY GARMAN – Tennessee Business Valuation Divorce – Ear, Nose, Throat Medical Practice
How is the value of a business determined for the purposes of dividing marital assets in a Tennessee divorce?
The Tennessee Supreme Court in Kinard v. Kinard held that the valuation of a marital asset is a question of fact, with each party bearing the burden of presenting competent evidence at trial, and when the evidence conflicts, a trial judge has the discretion to assign a value within the range of values supported by evidence.
The Tennessee Appellate case Garman v. Garman illustrates how much latitude trial judges are allowed when making determinations regarding valuation of marital assets.
The Garmons were married on July 3, 1993 and had three children born of their fifteen year union. When the couple first met, Guy Garmon was in his fifth year of a six year internship earning approximately $30,000 per year. Jean Garmon, who held a Masters degree in Business Administration from Cornell University, was working for a textile importing company in Belcamp, Maryland making approximately the same amount of money as her future husband.
Once married, the parties relocated a few times due to Dr. Garman’s residency. The couple had their first child in 1996, at which point Ms. Garmon became a stay at home mother. In 1997, the Garmons finally settled in Maryville, Tennessee where Dr. Garman, an ear, nose and throat doctor, joined the Otolaryngology Center of East Tennessee (“OCET”) medical practice.
In 1999, Dr. Garman bought a 50% share in OCET for $92,000.00. In the fall of 2008, Dr. Garman and his partner, Dr. Adham, brought in a third partner for $25,000.00, with both Dr. Garman and Dr. Adham receiving $12,500.00 each. At the time the third partner bought into the medical practice, the three partners also executed a “buy/sell” agreement which would be triggered if any partner decided to leave the practice.
By all accounts, the Garmans lived an extravagant lifestyle beyond their means, and the mounting debt took a toll on the marriage. Dr. Garman suffered from bouts of depression and alcoholism, and the couple started arguing about Ms. Garman’s reluctance to return to the workforce. But once Dr. Garman started having an affair with another woman, the marriage fell apart, and in 2008 the couple separated.
Once separated, in November of 2008 Dr. Garman moved to St. Croix and advised his partners of his intent to leave OCET to start a new medical practice. In accordance with the provisions of the “buy/sell” agreement, Dr. Garman was paid approximately $15,900.00 for his interest in the practice, of which he and Ms. Garmon each received $7,984.50 for their respective share.
On December 4, 2008, Ms. Garman filed for divorce against her husband on the grounds of inappropriate marital conduct. Ms. Garman was not satisfied with the $15,900.00 Dr. Garman received from his share of his business partnership, so she hired Van Elkins, an expert CPA valuator to determine the value of Dr. Garman’s share of OCET as an ongoing concern.
Using the “asset approach,” i.e., the value of the fixed assets less liabilities, Mr. Elkins originally valued Mr. Garmon’s one-third interest in OCET at $114,194.00.
However, Mr. Elkins performed the valuation of the medical practice as of June 30, 2009, four months before Dr. Garmon sold his interest in OCET, and there was no evidence that he took a fresh look at the accounts receivable of the practice after that date. Additionally, the valuation did not account for bonuses paid out to Dr. Garman and his partners in July 2009, which on cross-examination Mr. Elkins conceded reduced the overall value of the practice by $91,616 and the value of Dr. Garman’s one-third interest to $68,000.
The Trial Court found the value of Dr. Garmon’s interest in the medical practice to be $48,000.00. Ms. Garman appealed the Trial Court’s decision alleging that the court improperly valued the medical practice.
The Tennessee Court of Appeals affirmed the Trial Court’s determination, holding that the court’s valuation was within the reasonable range supported by the record since the only evidence submitted at trial consisted of the $15,900.00 that was received under the “buy/sell” agreement, and Mr. Elkins’ testimony.
E2010-01215-COA-R3-CV (Tenn. Ct. App. May 16, 2011).
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.
