Electrical Business Valued at $260,000. Goodwill Held Not To Be Divided in Divorce.

Tennessee law case summary on classification and business valuation in divorce law from the Court of Appeals.

Susan Anne Ogles v. Thomas Wayne Ogles

Susan and Thomas Ogles were married in 2001, when the wife was 54 years old and the husband 56.  It was the fourth marriage for both.  The husband owned an 88 acre farm, cattle business, and a company that employed six to eight electricians.  The wife worked as a real estate broker but quit her job a year after the marriage.  She spent a few hours per week working for the husband’s businesses, but was not otherwise employed.

They separated in 2010, and the wife filed for divorce, alleging irreconcilable differences and inappropriate marital conduct.  The husband filed a counter-complaint with the same grounds.  The wife claimed an interest in the husband’s businesses.

While the divorce was pending, the cattle were sold for $350,000, and they agreed to use this money to pay certain expenses and split the remainder.  They also agreed that the farm would be split as marital property, and that it was valued at $537,000.  They did not agree, however, as to the electrical business.  At the time of the divorce, the business had grown to 29 employees, and it went from owning four or five vehicles to owning 29.  The wife argued that she had substantially contributed to this growth, but the husband disagreed.

After trial, the lower court agreed with the husband and held that the electrical business was his separate property.  Accordingly, it was awarded to the husband.  The trial court reasoned that the husband had owned it prior to the marriage.  However, it held that the increase in the company’s value during the marriage was marital property.  Adopting the husband’s expert valuation, it held that the business was worth $260,000, and had been worth $124,000 at the time of the marriage.  It further held that the husband had contributed more to the growth of the company, and awarded him 60% of the increased value, giving 40% to the wife.  As a result of these findings, it ordered the husband to pay the wife $54,400 for her share.  The wife then appealed to the Tennessee Court of Appeals.

The appeals court first grappled with the value of the electrical business.  Both parties had offered expert testimony as to the value.  Testifying on behalf of the wife was CPA Steve Maggart, who was also an accredited business valuator.  He had worked in the accounting field since 1972.  He used a variety of methods to value the company.  Under the book value method, he set the value at $274,000.  Using an asset based method of valuation, he came up with a value of $378,000.  Under the capitalization method, he found the value to be between $610,000 and $835,000.  He believed that the capitalization method was the most appropriate, and concluded that a “fair number” under this method would be $725,000.

The husband’s expert witness was CPA Gerald LeCroy, who was also a certified valuation analyst who had been in practice since 1962.  He set the values at $260,000 under the net asset value method, and $245,000 under the capitalization of earnings approach.  He believed that the asset value approach was appropriate in this case, and set the fair market value at $260,000.

The trial court settled on Mr. LeCroy’s valuation, noting criticism of Mr. Maggart’s use of the $725,000 figure.  Mr. LeCroy opined that no reasonable person would pay that much for the business.

In accepting the lower value, the trial court had essentially not included anything for the goodwill of the business.  The wife argued that this was improper, because the goodwill really went with the business, rather than being attributable to the husband personally.  Under Tennessee law, goodwill is not a marital asset if it is dependent on the spouse’s personally performing a profession.

The Court of Appeals disagreed with the wife, and held that the goodwill was not a marital asset in this case.  It sifted through the evidence and concluded that the goodwill of the business was attributable to the husband’s involvement in the company.

After analyzing the evidence, the appeals court agreed with the trial court that the evidence did not preponderate against the judgment, and it affirmed the business valuation.

The wife next argued that a number of pieces of property should have been included in the marital property, rather than being included in the husband’s separate property.  Once again, it examined the evidence and held that the evidence supported the lower court’s findings.

The appeals court also affirmed the amount of the alimony award, and the denial of attorney’s fees to the wife.

No. M2013-02215-COA-R3-CV (Tenn. Ct. App. Jan. 7, 2015).

See original opinion for exact language.  Legal citations omitted.

To learn more, see Business Valuation in Tennessee Divorce Law.