Real Estate Holding & Management Co. Valued in TN Divorce

Tennessee business valuation law case summary – Residential Property Ownership and Management. Tennessee divorce and family law from the Tennessee Court of Appeals.

Owens v. Owens – Tennessee Business Valuation Law – Residential Property Ownership and Management Partnerships

James Emery Owens and Linda Alexander Owens were married in 1977.  Mr. Owens had served in the Army had completed a year of college.  He was employed as a real estate broker and investor during most of the marriage.  Mrs. Owens had a teaching certificate, and had worked as a substitute teacher early in the marriage, but eventually became a full-time homemaker.

Mr. Owens owned a 20% interest in Prudential Woodmont Realty, and the trial court valued this interest at $117,000.  Mrs. Owen’s expert witness, who was not named in the Court of Appeals’ opinion, valued the interest at $221,000.  Mr. Owen’s expert, who was also not named, valued it at $27,000.

On appeal, Mrs. Owen argued that Mr. Owen’s low expert valuation was “against logic” and should be ignored entirely.  Therefore, she argued, the only credible evidence was her expert’s valuation of $221,000, which should have been accepted.  The Court of Appeals disagreed, since the value adopted by the trial court was within the range of values presented by the competent evidence.

In addition, the Court of Appeals noted that there was additional evidence that could be considered.  Mr. Owens testified that he had purchased his interest in the company in 1990 for $7,500.  He also testified that in 2001, the business had purchased back a 16% interest from a former owner for $80,000.

The flaw in Mr. Owen’s expert opinion, according to Mrs. Owen, was the fact that it did not account for the fact that he was required to share less of his commissions with the company than other agents were required to share.  Non-owners of the company were required to pay 20-30% of their commissions to the company.  However, the owners, such as Mr. Owen, were not required to make this payment.  According to Mrs. Owen, the husband’s expert failed to take this into account when arriving at a valuation.  The Court of Appeals held that even if this were the case, the trial court was still within the range of values presented by competent evidence.  For that reason, the Court of Appeals held that the trial court’s valuation should not be second guessed.

The Owens also had an interest in two partnerships.  One of these partnerships was with Ray Pruett.  The Owens-Pruett partnership owned and managed three residential rental properties.  The other partnership was with James Ragghianti.  The Ragghianti-Owens partnership owned and managed two residential rental properties and a vacant lot.  The valuation of these partnership interests was not at issue on appeal.

The trial court had awarded equal shares of each partnership to each spouse.  The Court of Appeals noted that this type of division raises concern, because it requires the spouses to remain in business together.  Therefore, the Court of Appeals adjusted the property division by awarding Mr. Owens the entire interest in the Pruett-Owens partnership, and awarding Mrs. Owens the entire interest in the Ragghianti-Owens partnership.

No. M2005-00639-COA-R3-CV (Tenn.Ct. App. Mar. 29, 2007).

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.