Orthodontist Practice Valued at $500,000 in TN Divorce

Tennessee business valuation law case summary – orthodontitst professional practice. Tennessee divorce and family law from the Tennessee Court of Appeals.

ALYSON LEIGH AMONETTE EBERTING v. JEFFREY JENNINGS EBERTING – Tennessee business valuation case – dental orthodontist practice

In February 2008, after fourteen years of marriage, Alyson Eberting filed for divorce from her husband Jeffrey Eberting.  The divorce was contentious and was tried over multiple days in January and September of 2009, and February of 2010.

During deposition testimony, the husband admitted to numerous adulterous affairs with various women.  At trial, the husband admitted to several more affairs than he previously had testified about, including one affair that occurred while his wife was pregnant with their first child, and one that occurred while he was an orthodontic resident and his wife was working to support the family.  However, one of the main disputes between the divorcing parties at trial related to the value of the husabnd’s orthodontic practice.

At trial, the wife’s expert testified that the orthodontic practice had a value of $700,000, while the husband’s expert testified that his practice had a value of $224,000.  The Trial Court rejected both expert valuations, determining the value of the orthodontic practice to be $500,000.

The Trial Court entered its Final Judgment for Divorce on August 12, 2010.  The husband appealed the Trial Court’s decision, but the Tennessee Appellate Court upheld the Trial Court’s valuation of the husband’s orthodontic practice since there was evidence submitted at trial on which the court based its decision.

Alyson and Jeffery Eberting were married in July of 1993 while the husband was in dental school and the wife was just beginning law school.  During the marriage, both parties served in the Navy, and after completing his service in 1999, the husband began orthodontic school.

The Ebertings had their first child together in October of 1999 and their second child in September of 2001.   The family moved to Knoxville shortly before the husabnd graduated orthodontic school and the wife was a stay at home mother from the time the parties moved there until December of 2002, at which point she began work as an assistant city attorney in the City of Knoxville Law Department. The couple had their third child in April of 2003.

When the Ebertings moved to Knoxville, the husabnd purchased the existing orthodontic practice of Dr. Thomas Pryse for $250,000. The purchase price of the practice included two locations, equipment, patient accounts, staff, and goodwill, but it did not include accounts receivable.

In the fall of 2004, the husband began construction of a new office building for his practice at 619 Smithview.  In March of 2005, the husband moved his practice into the new state-of-the-art office building which cost approximately $1.1 million.  For the purposes of the divorce, the husband had the building appraised at $950,000, while the wife had the building appraised at $970,000.

The husband purchased the property at 619 Smithview for $120,000 in 2002.  The property was owned by Tooth Enterprises, LLC, an entity formed specifically to own the 619 Smithview building.  The husabnd owned 50% of Tooth Enterprises, LLC and the wife owned the other 50%.  The husband’s practice paid Tooth Enterprises, LLC $11,000 a month in rent for the 619 Smithview building.

When the husband originally purchased the practice in 2001, Dr. Pryse was grossing approximately $550,000 annually working four days per week. In 2004, the husband had increased revenues to $1,250.000 working twenty-five hours a week.

The wife’s expert, William Robert Vance, Jr., determined the fair market value of the practice to be $700,000.  Mr. Vance testified that his valuation included the practice’s hard assets of state-the-art equipment and building, trained workforce, and cash receivables, in addition to implied good will, which he believed to be the value or selling price over and above the value of the hard assets.

Using an asset approach methodology the husband’s expert, Walter James Lloyd, valued the practice at $224,000, less than the $225,000 the husband originally paid to purchase the practice.  The husband argued that the figure of $224,000.00 was the value of the practice’s hard assets and that any value above that figure represented goodwill, which Tennessee case law had determined is not part of the marital estate.  However, the husband also testified that he would be upset if he received an offer to sell his practice for $224,000.  Additionally, his August 2006 financial statement listed the value of 100% of his practice at $500,000.

The Trial Court believed that the value of the orthodontic practice was between $224,000 and $700,000, and decided to value the practice at $500,000 based on the husband’s own evidence and testimony.  Because other evidence besides expert testimony regarding the value of the husband’s practice was presented at trial, the Appellate Court held that the Trial Court found a value for the practice that was within the range of values presented by the evidence.

No. E2010-02471-COA-R3-CV (Tenn. Ct. App. Feb. 27, 2012).

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.