Disposal Company Valued in Tennessee Divorce
Tennessee business valuation law case summary – disposal company. Divorce and family law from the Court of Appeals.
Beverly Gayle Wilson v. Thomas Randall Wilson — Distribution of increase in value of husband’s business to the wife as marital property (from 2003).
The parties were divorced for the first time in October of 1994. As part of the Marital Dissolution Agreement, Beverly G. Wilson (“wife”), relinquished all interest in Wilson Brothers Disposal (“Business”) giving Thomas Randall Wilson (“husband”), sole and separate interest in the business. The parties remarried three years later with wife owning no interest in the business.
During the second marriage, wife quit her job at the State of Tennessee to work for the business. Wife presented evidence that while working for the business, she answered phones, took care of the books, helped secure contracts for the business, wrote checks for the business, helped load garbage on trucks, painted dumpsters, and helped to secure containers riding on the trucks. For this work, wife received compensation of $200 per month to pay for her and husband’s health insurance. After husband and wife separated in January of 1999, wife did not have any more involvement with the business.
Husband and wife filed for divorce in February 1999. Wife requested an equitable marital interest for the increase in the value of the business. The divorce was granted in August 2001, and in November of that year, the trial court ordered husband to supply all financial information relating to him and the business to wife. A hearing for the distribution of marital property was held in June 2002. At the hearing, wife offered two valuations of the business prepared by a Certified Public Accountant (“expert”) as proof of the increase in the business’s value. The first valuation, $250,000, represented the value of the business at the time of the second marriage (October 1996), and the second valuation, $550,000, represented the value of the business as of December 31, 1999. At trial, wife’s expert explained that she arrived at these values by using accounting procedures based on the business’s financial records. The expert also explained that she used December 31, 1999, as the date of final valuation because husband only supplied financial information up to that date, despite the trial court’s order requiring production beyond that date. The trial court found that wife contributed substantially to the improvements of the business and awarded her $37,500 as an equitable distribution of the marital interest in the business’s increase in value. In addition, the trial court ordered husband to pay wife the discretionary costs of $2,400 representing the costs of appraisal. The trial court arrived at $37,500 by dividing the increase in value figure of $300,000 by the parties’ share, $150,000, from the other co-owners of the business and then awarding wife 25% of the parties’ share amounting to $37,500.
Husband appealed these awards and asserted that the trial court erred in: (i) finding husband’s interest in the business to be marital property; (ii) finding that wife substantially contributed to the preservation and appreciation of the business; and (iii) finding that the December 31, 1999 appraisal represented an accurate value of the business as of the date of divorce.
The court of appeals said that it was undisputed that the business was husband’s separate property from the beginning and throughout the marriage; however, the classification of the business’s increase in value as separate or marital property had to be examined by the appellate court. The increase in value of separate property is considered to be marital property only when the non-owner spouse substantially contributes to the property’s preservation and appreciation. Before the appreciation of the property is considered marital, the court of appeals said there must be some link between the efforts of the spouse and the property’s appreciation. The trial court found that wife’s employment and overall involvement with the business substantially contributed to its preservation and appreciation resulting in the finding that the increase of the business’s value was marital property. This determination was entitled to great weight on appeal and was presumed to be correct unless the preponderance of evidence said otherwise.
The record indicated that wife assisted in the daily operations of the business in all manner of tasks—from physical labor to administrative duties. Husband argued that wife was compensated for this work but the record indicated that wife only received the nominal compensation of $200 a month for couple’s insurance. Upon reviewing the record, the court of appeals held that the evidence did not outweigh the trial court’s finding that wife’s involvement with the business substantially contributed to the preservation and appreciation of the business making the increase in the business’s value marital property. As a result, the appellate court affirmed the trial court’s classification of the business’s increase in value.
Husband also argued that it was reversible error for the trial court to base its finding of the business’s increase in value on a valuation that was performed over two years before the distribution of marital property. His argument was not without merit, the court of appeals said, but his actions precluded its assertion. In order for a non-owner spouse to claim an equitable share of the increase in value of separate property, that spouse must prove, among other things, an increase in value of the separate property during the marriage. In addition, state statutes required that all marital property be valued as of a date as near as possible to the date of entry of the order finally dividing the marital property. In this case, the proper date for the ending valuation would be as close as possible to the final order, July 19, 2002. Husband argued that the December 31, 1999, valuation date was not as near as possible to that date, and that the trial judge erred by basing its findings upon that date. However, the record indicated that the 1999 date was used by the expert because husband himself failed to deliver any financial information beyond that date—even in light of an order from the trial court requiring further production. As a result, husband was precluded from asserting a premature valuation when that valuation was a product of his own doing. The court of appeals affirmed the trial court’s use of the December 31, 1999, valuation date as timely under the circumstances.
Finally, husband argued that the appraisal presented was not an accurate valuation and as a result the cost of such appraisal should not have been awarded. The court of appeals felt that the appraisal was accurate under the circumstances and the cost could be awarded as discretionary in accordance with Tennessee law. The awarding of such costs is a matter within the discretion of the trial court, and there was no abuse of the trial court’s discretion in awarding those costs. This issue was also affirmed.
M2002-02286-COA-R3-CV (Tenn. Ct. App. Sep. 30, 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.
