Auto Sales Company Dissipated | Business Valuation TN Divorce

Tennessee business valuation law case summary – Auto Sales. Divorce and family law from the Court of Appeals.

Robinson v. Robinson – Auto sales company dissipated and sold to father

Russell Raynor Robinson and Rhonda Leigh Jones Robinson were married in 1991 and had four children.  Both were college graduates, but Rhonda never held a full-time job outside the home.  She had worked as a part-time model, but took charge of caring for the children and household, while Russell earned money to support the family.  The parties were divorced in 2001, each party asserting that the other had engaged in inappropriate marital conduct.  A guardian ad litem investigated various claims of drug use, paramours in the presence of the children, and other parenting deficiencies.

After they were married, the parties moved to Austin, Texas, where Russell worked as a sales representative.  They moved to Memphis in 1995, and Russell went to work for his father, Mack Robinson, who owned a used car dealership.  Russell worked as sales manager for about 18 months until the dealership went out of business.  However, he continued to work for his father for a time collecting receivables.

In 1996, Russell started his own automobile wholesale business, Southern Wholesale.  He started this business with $20,000 obtained from his father.  Russell called this a loan, but there was never any written loan document or repayment schedule.  When the parties began experiencing marital difficulties, Southern Wholesale made a payment to the father in the amount of $12,500, which was characterized as a loan payment.  The business was operated out of the parties’ home, initially as a sole proprietorship.  Russell purchased cars at wholesale auctions and resold them.  Initially, the purchases were financed with credit card cash advances, and later bank loans.  At some point, the business was incorporated and moved out of the house.

In 1999, Russell opened Covington Pike Auto Depot, a retail dealership, in Memphis.  In 2000, he opened a second dealership in Memphis.  Both of these became franchises of Thrifty.  In 2001, he opened another Thrifty franchise in Jonesboro, Arkansas.  All of these locations served as outlets for cars acquired by Southern Wholesale.

In 2000, Russell had an adjusted gross income of $1,790,316.  During that year, he spent substantial time engaging in stock trading, with a volume of over $5 million in trades.

Shortly after Rhonda filed for divorce in 2001, Russell obtained a $3.5 million bank loan.  The proceeds of this loan paid off prior loans and lines of credit.  In connection with that loan, Russell presented a financial statement showing a net worth in excess of $3 million.  After obtaining this loan, Russell wrote his father a number of checks, but was allowed to keep the proceeds of those checks.  He also drew $597,000 from Southern Wholesale to pay his personal income taxes.

The business did not do well during this time, and the bank was concerned.  Eventually, Russell’s father agreed to purchase the loan from the bank and essentially assume the bank’s position.  Prior to the father concluding this transaction, Russell had made payments to various persons totaling $203,641.

The father ultimately liquidated the assets of the businesses, resulting in a deficiency of $167,894.  The father then obtained a default judgment against Russell for this amount, plus various costs and fees.  He then began running many of the same businesses, and hired Russell as a manager.

At trial, Russell contended that he was unaware of the poor condition of his business prior to the divorce, and that he had been taken advantage of by various employees.

The trial court concluded that many of the payments made by the business after the divorce filing were non-business expenses which amounted to dissipation.  It found these amounts to total over $59,000, and awarded half that amount to Rhonda.  Furthermore, it found that Russell’s conduct at the end of the marriage amounted to events designed to destroy the business and obliterate the investments of the marital estate.  It found that Russell and his father “participated in a well-devised and carefully orchestrated scheme to deplete the marital estate.”  It therefore appointed a special master to determine the value of the father’s replacement business, and announced the intention of awarding half of that value to Rhonda.

The Court of Appeals agreed that the finding of dissipation was supported by the record and should be affirmed.  It therefore affirmed the trial court, and remanded the case for the business to be valued by the special master.

No. W2003-01836-COA-R3-CV (Tenn. Ct. App. May 9, 2005).

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.