4 Yrs Married TN Wife Gets 25% of Appreciation in Husband’s Businesses

Tennessee business valuation law case summary – Tractor Trailer Rigs Sales and Leasing. Tennessee divorce and family law from the Tennessee Court of Appeals.

Humphries v. Humphries – Tennessee Divorce Business Valuation Case – Tractor Trailer Rigs Sales and Leasing

When determining business valuation in a divorce case, in relatively short marriages each spouse’s contribution to the accumulation of assets during the marriage is an important factor to consider. However, when a marriage is short, a spouse’s non-monetary contribution is less significant, and claims by one spouse to another spouse’s separate property are minimal at best. Tennessee Court of Appeals case Humphries v. Humphries illustrates what the Tennessee Court considers to be a less significant contribution to a marital business.

Karen and David Humphries were married on October 22, 1994 and divorced just four years later in 1998.  Both had been married previously.  While they never had children together, they both had children from previous marriages. Mr. Humphries’ children were adults, but Mrs. Humphries’ children were minor teenagers.  At the time the couple married, Mrs. Humphries was self-employed and working part-time as an interior designer earning approximately $9,000 to $10,000 a year. Mrs. Humphries also received child support from her former husband.

Mr. Humphries owned a one-half interest in Smoky Mountain Freightliner, LLC, and Smoky Mountain Leasing, LLC, businesses which sold and leased tractor trailer rigs. Mr. Humphries also owned a four-unit apartment building from which he received regular income and also owned a one-half interest in a tract of commercial property located at the intersection of Interstate Highways 81 and 181 near Bristol, Tennessee. The trial court found that at the time of the marriage, Mrs. Humphries had a net worth of $161,248, and Mr. Humphries had a net worth of $237,500.  After getting married, Mrs. Humphries continued to work part-time as an interior designer, in addition to managing her husband’s apartments. Mrs. Humphries also testified that for the first 15 months of the marriage, she paid all of the household expenses out of her own assets.

C.P.A. Jack A. Bonner, Jr. had worked for Mr. Humphries’ businesses and testified that at the time of the marriage, the businesses had a lot of debt, were barely making it and it was not certain if the businesses would survive. In 1996, Mr. Humphries decided to relocate his businesses and construct a new facility on his commercial property located at the intersection of Interstate Highways 81 and 181. Mrs. Humphries worked without compensation on the interior design for most of the facility, which included the sales office, reception room, conference room, personal offices, kitchen, floorings and walls of the parts department, and the truckers’ lounge.

After the relocation to the new site, Smoky Mountain Freightliner, LLC, experienced a boom in sales, with gross receipts of $26,193,202 and a net income of $1,163,265 by 1998.  Mr. Humphries’ other business ventures also enjoyed increased success, increasing Mr. Humphries’ taxable income as a result. In 1996 Mr. Humphries’ taxable annual income was reported at $28,235, which increased to $755,637 by 1998.  Mrs. Humphries’ income, however, remained substantially the same during the marriage.

The parties separated on February 1, 1998, and Mrs. Humphries filed for divorce on July 20, 1998. Both parties agreed at the bench trial that the valuation date to determine the value of the marital assets would be April 15, 1999.  The validity of this agreement as well the assertion that there was an increase in the value of Mr. Humphries businesses during the marriage was a source of contention between the divorcing spouses.

On remand from the Appellate Court, the trial court decided that Mrs. Humphries’ contributions to the marriage as a wife and homemaker, her management of her husband’s apartment building, in addition to her work in connection with the interior design of the new Freightliner facility increased the value of Mr. Humphries’ business interests to the degree of qualifying as marital property. However, the court also decided that since that Mrs. Humphries’ contributions to the marital businesses were not as direct and significant as her husband’s efforts, Mrs. Humphries was entitled to only 25% of the increase in value of Mr. Humphries’ interest in the subject businesses.

Mr. Humphries then filed an appeal on that decision on the basis that he believed the trial court erred in classifying the increase in value of his separate property as marital property.  First, Mr. Humphries believed that the sole cause of the increase in value of his business interests was the result of his decision to relocate them adjacent to the interstate.  Second, Mr. Humphries argued that even if his wife did make any contribution to the maintenance and appreciation of his separate property, that contribution ceased at the time the couple separated in February, 1998.  Consequently, he did not believe that the increase in value following the separation should be considered marital property.

The Court of Appeals did not agree with Mr. Humphries’ argument, instead holding that the trial court divided and distributed the marital property appropriately for the circumstances.  At the time of marriage, both Mr. and Mrs. Humphries had relatively similar net worths.  While Mr. Humphries’ income was significantly greater than Mrs. Humphries’ income at the time of the marriage, Mrs. Humphries made significant financial contributions to the marriage the first 15 months of the marriage and paid the parties’ household expenses out of her separate property. The Court found that the parties made substantially equal financial contributions, at least in beginning of the marriage and the increase in the value of Mr. Humphries’ businesses was due to the efforts of both parties.  Therefore, the Appellate Court held the overall property division was equitable.

E2000-02912-COA-R3-CV (Tenn. Ct. App. May 9, 2001).

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.