Husband Valued Own Business Over $3 Mil. in Loan Application
Tennessee business valuation law case summary – check cashing business. Tennessee divorce and family law from the Tennessee Court of Appeals.
Powell v. Powell – Tennessee divorce business valuation for a check cashing business
Christopher Nash Powell and Pasty Conley Powell were married in 1997. They divorced in 2001 on the grounds of Mr. Powell’s inappropriate marital conduct. Mr. Powell owned an interest in a check cashing business along with his brothers. The business consisted of numerous check cashing outlets. Mr. Powell owned a minority interest in most of those stores, and owned a 50% interest in two of them. The value of these business interests was disputed. Mr. Powell’s expert, one Mr. Noble, his CPA, valued the business at $385,482. Mrs. Powell’s expert, Mr. Robert Vance, a CPA and certified valuation analyst, valued them at $2,290,000. The Court of Appeals noted in a footnote that Mr. Noble’s qualifications “paled in comparison” to those of Mr. Vance.
The trial court accepted the value placed by Mrs. Powell’s expert. On appeal, Mr. Powell argued that this value did not represent the fair market value of the business. Instead, the value accepted by the trial court was that of an ongoing concern.
Since it accepted the $2.29 million valuation, the trial court awarded Mrs. Powell half of the increase in value during the marriage of stores owned prior to the marriage. (Mr. Powell had placed a value of $595,000 on the business prior to the marriage. At that time, only one store had been in operation.) The trial court also awarded half the value of the stores acquired during the marriage. The amount awarded to Mrs. Powell amounted to $1,119,000. Mr. Powell appealed the valuation to the Tennessee Court of Appeals.
The Court of Appeals first noted that most of the stores were run as Limited Liability Companies (LLC’s), and that the issue of valuation of an LLC had not previously arisen in a Tennessee case. However, the Court of Appeals concluded that the same rules used for closely held corporations should apply.
Under those rules, a number of valuation methods can be used. The fair market value of the company is one possible method, but it is not the only one that can be used. In this case of a closely held company controlled by a small group of family members, the Court held that the fair market value method need not be used. In this case, faced with competing experts, the Court of Appeals concluded that the trial court simply found Mrs. Powell’s expert to be more credible on the issue of which method to apply.
The Court also noted that there was other evidence supporting the trial court’s finding. Ten months prior to the divorce, Mr. Powell had submitted financial statements to various financial institutions. In those statements, he had represented the value of his interest to be $3.37 million. Even though Mr. Powell claimed at trial that these statements overstated the value of his interest, the Court noted that such statements were competent evidence of the true value.
Since the trial court’s finding was well within the range of values in the evidence, the Court of Appeals refused to disturb it.
No. W2002-00421-COA-R3-CV (Tenn.Ct. App. Apr. 7, 2003).
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.
