IN RE THE MARRIAGE OF: LAURA A. BALLINGER,
Petitioner/Appellee,
v.
GLENN M. BALLINGER, Respondent/Appellant.
DEBORAH B. BARNES, CHIEF JUDGE:
¶1 Respondent/Appellant Glenn M. Ballinger (Husband) appeals a divorce decree
filed in December 2012. Petitioner/Appellee Laura A. Ballinger (Wife)
counter-appeals. Although five children were born of the marriage, neither party
raises issues on appeal relating to the children. Rather, Husband argues, among
other things, that the trial court erred in its valuation of Wife's dental
practice, and Wife argues the trial court erred in failing to divide certain
"Plan B" retirement benefits of Husband. Based on our review, we affirm in part,
reverse in part, and remand with directions.
BACKGROUND
¶2 The parties were married in 1990. Shortly before the marriage, Husband
commenced employment with the City of Oklahoma City as a firefighter. In 1996,
Wife started her dental practice. In November 2011, Wife filed a petition for
divorce, and a trial was held over four days in July 2012.
¶3 Both parties hired experts to provide a valuation of Wife's dental
practice. Husband's expert, a certified public accountant and valuation analyst,
calculated the value of the dental practice using "the market method," and
concluded it is worth $382,447. This calculation included a value of the
marketable goodwill of the practice based upon comparable sales. In particular,
the goodwill calculation was based upon the previous year's gross income of the
dental practice - $765,480 - "multiplied by a goodwill percentage that comes
from the market data" - 48.47% - resulting in a goodwill value of $371,028. To
this goodwill value Husband's expert added $11,419, representing the tangible
value of the dental practice, resulting in the total valuation of $382,447.
¶4 Wife's expert used a "net asset method" to calculate the value of the
dental practice. This method did not include any intangible or goodwill value,
but instead determined the value of the practice based on the funds that would
be generated by a liquidation of the practice - i.e., by taking the total assets
of the practice, which Wife's expert concluded equaled $154,668, and subtracting
the total liabilities, which Wife's expert concluded equaled $155,777.
Consequently, Wife's expert valued the practice at a negative amount:
-$1,109.
¶5 The trial court rejected Wife's expert's valuation, stating in the divorce
decree that Wife's expert "wound up on using only a net asset method, when both
experts agree, and as their reports respectively indicate, that is typically not
an acceptable method when valuing a dental practice." The decree also states
that Wife's expert "admits that in some instances when utilizing a percent
factor for gross revenue sales, one can achieve as much as 60-65%, whereas
[Husband's expert] wound up with an amount of approximately 48%" - referring to
the goodwill percentage used by Husband's expert - and that "even considering
the average of other Oklahoma actual market transactional sales amounted to
around 52%."
¶6 Regarding the method relied upon by Husband's expert, the decree states
the market method is
something that both experts agree is an acceptable method for valuation
of dental practices. . . .
. . . [Husband's expert] researched the goodwill registry - something
that he testifies has become more and more reliable over the years; however,
he also researched market data transactions from . . . a former dentist who
has retired and engages in the purchase and sale of dental practices in the
Oklahoma area.
. . . [Husband's expert] also made it clear that along with the other
criteria he specified for his assessment . . . he limited his data to actual
sales transactions, not to other valuation positions such as . . . when an
actual sale does not occur. This supports the reliability of [Husband's
expert's] data, and his ultimate value finding of $382,4[4]7 . . .
.
¶7 However, the trial court stated in the decree that the goodwill percentage
used by Husband's expert "includes all goodwill, both personal and enterprise,"
and found that Husband's expert's valuation does not constitute "the fair market
value of [Wife's] dental practice" because this "value does not separate
personal and enterprise goodwill." The trial court found the value of the dental
practice to be $160,686.61.
¶8 Regarding Husband's "Plan B" firefighter retirement benefits, a plan in
which Husband had not yet elected to participate, the trial court found it would
"not divide Plan B, it is not an asset to be divided . . . ." However, it stated
that "if [Husband] should elect Plan B, that to the extent it may affect
anything that [Wife] would be entitled to without that election, [Husband] is
required to indemnify her and make sure that she is made whole."
¶9 The trial court divided numerous property items. Among other things, and
pertinent to this appeal, the trial court awarded Husband "[t]he bulldozer at a
value of $10,000.00," and found there existed marital debt in the form of two
"401k [loans] with Fidelity Investments" in the total amount of $22,510.
¶10 From the divorce decree, Husband appeals, and Wife counter-appeals.
STANDARD OF REVIEW
¶11 "A divorce suit is one of equitable cognizance in which the trial court
has discretionary power to divide the marital estate." Colclasure v.
Colclasure, 2012 OK 97, ¶
16, 295 P.3d 1123 (footnote
omitted). The division of property acquired during the marriage by the joint
industry of the husband and wife must be fair, just and reasonable. Id.;
43 O.S. Supp. 2012 § 121(B).
"However, a marital estate need not necessarily be equally divided to be an
equitable division because the words just and reasonable in § 121 are not
synonymous with equal." Colclasure, ¶ 16 (footnote omitted). "The trial
court has wide latitude in determining what part of jointly-acquired property
shall be awarded to each party." Id. (footnote omitted). This Court will
not disturb the trial court's decision regarding property division unless the
trial court abused its discretion or the decision is clearly against the weight
of the evidence. Standefer v. Standefer, 2001 OK 37, ¶ 19, 26 P.3d 104. See also
Smith v. Villareal, 2012 OK
114, ¶ 7, 298 P.3d 533 (In
an action of equitable cognizance there is a presumption in favor of the trial
court's findings and they will not be set aside unless the trial court abused
its discretion or the finding is clearly against the weight of the evidence.).
Likewise, the decision of the trial court to classify property as marital or
separate will not be disturbed on appeal unless clearly contrary to the weight
of the evidence. Standefer, ¶ 18. "[T]he trial court's choice of
method for the valuation of marital property and its determination of value will
not be disturbed on appeal unless contrary to law or the clear weight of the
evidence." In re Marriage of Lahman, 2009 OK CIV APP 26, ¶ 13, 209 P.3d 793 (citations
omitted).
ANALYSIS
I. Valuation of the Dental Practice (Husband's
Argument)
¶12 Husband argues the trial court erred in its valuation of Wife's dental
practice.1 In
particular, Husband asserts that "when utilizing actual market sales data" - as
his expert did - "the issue of distinguishing between 'enterprise' versus
'personal' goodwill is completely avoided, because it is only the 'enterprise'
goodwill that can result in the sale of a dental practice." Accordingly, Husband
asserts the trial court erred in finding Husband's expert's valuation did "not
separate personal and enterprise goodwill," and he argues that the trial court,
therefore, erred in reducing Husband's expert's valuation on this basis. Husband
asserts the trial court "made no findings to justify its significant deviation
from the only credible value in evidence," and requests that this Court
determine that the value of Wife's dental practice equals the amount calculated
by his expert.
¶13 In Mocnik v. Mocnik, 1992 OK 99, 838 P.2d 500, the Oklahoma Supreme
Court stated, "[i]f goodwill is to be divided as an asset, its value should be
determined either by an agreement or by its fair market value. Both of these
methods are widely accepted for valuing goodwill." Id. ¶ 21 (citation
omitted). "Market value is the price negotiated by a willing buyer, not
obligated to buy, and a willing seller, not obligated to sell, in a free and
open market. The term market value has been construed as synonymous with actual
value." Howell v. Texaco, Inc., 2004 OK 92, ¶ 17, 112 P.3d 1154 (citations
omitted).
¶14 Regarding the definition of goodwill, the Oklahoma Supreme Court has
explained:
Goodwill has been defined as the "favor or prestige that a business has
acquired beyond the mere value of what it sells." The Oklahoma Statutes
define it as, "the expectation of continued public patronage . . . ."2 According
to Travis [v. Travis, 1990 OK 57, 795 P.2d 96,] the goodwill value
of a business "is the value that results from the probability that old
customers will continue to trade with an established
concern."
Mocnik, ¶ 14 (citations omitted) (footnote added). See also
Freeling v. Wood, 1961 OK
113, ¶ 12, 361 P.2d 1061
(Goodwill "has been defined as the custom or patronage of any established trade
or business; the benefit or advantage of having established a business and
secured its patronage by the public.").
¶15 If the value arising from the favor or prestige of a practice, or from
its expectation of continued public patronage, "depends on the continued
presence of a particular individual," then this value, "by definition, is not a
marketable asset distinct from the individual." Travis v. Travis, 1990 OK 57, ¶ 10, 795 P.2d 96 (citation omitted). On
the other hand, if this value
is a marketable business asset distinct from the personal reputation of a
particular individual, as is usually the case with many commercial
enterprises, that goodwill has an immediately discernible value as an asset
of the business and may be identified as an amount reflected in a sale or
transfer of a business.
Id. (citation omitted).3
¶16 Accordingly, if any portion of the goodwill of a practice constitutes
a truly marketable asset, it may be used in determining the market value of
the practice. To the extent the goodwill of a practice constitutes a marketable
asset, it is, "by definition," distinct from a particular individual. See
Travis, ¶ 10.4
¶17 In Traczyk v. Traczyk, 1995 OK 22, 891 P.2d 1277, the Oklahoma Supreme
Court upheld a fair market value calculation of the goodwill of a podiatry
clinic operated by the husband (Dr. Traczyk) through a wholly owned professional
corporation (the Bethany Foot Clinic). In Traczyk, the expert witness
"took the previous year's gross income" of the Bethany Foot Clinic, "and
multiplied it by the 32% figure" - a figure representing, according to the data
relied upon by the expert, the average percentage of podiatry patients that stay
with a podiatry clinic when one is sold to a new doctor - to arrive at a market
value of the goodwill of the business. Id. ¶¶ 12-13.
¶18 The Traczyk Court explained its holding as follows:
Although many of Dr. Traczyk's patients would not continue to patronize
the Bethany Foot Clinic were Dr. Traczyk to sell to another podiatrist,
competent evidence indicates that many would stay. Indeed, Dr. Traczyk may
use the goodwill as a selling point to potential purchasers. . . .
That percentage of patients who continue at the clinic after its transfer
may be considered the goodwill of the clinic in this case. The undisputed
evidence was that 32% of Husband's patients would be expected to
remain.
Id. ¶¶ 14-15 (citation omitted). In particular, "[t]he range from
which [the expert] obtained the [32%] average was 21% to 44% of clients
staying," and the expert "took the previous year's gross income at the clinic
($324,201.51) and multiplied it by the 32% figure to arrive at a goodwill value
of $103,744.00. Adding this to the value of the remaining business assets, the
expert found the total value of the Bethany Foot Clinic to be $152,605.44."
Id. ¶¶ 12-13.
¶19 In the present case, Husband's expert used the previous year's gross
income of Wife's dental practice - $765,480 - in his goodwill-value calculation.
As noted by the Traczyk Court, "the traditional method used in valuing a
medical practice is the previous year's gross income . . . ." Id. ¶ 13.
The use of the previous year's gross income was especially appropriate in this
case because the gross income of Wife's dental practice had consistently risen
from year to year.5 Husband's expert then multiplied the previous year's
gross income by a "goodwill percentage" - 48.47% - resulting in a goodwill value
of $371,028. Husband's expert testified that this goodwill percentage was based
upon comparable sales of dental practices "where they'd allocated the purchase
price" to show the amount paid for the tangible assets and the amount paid for
the goodwill. Husband's expert testified, "And then from that I calculated what
the goodwill percentage was based upon the most recent year's gross income."
¶20 Husband's expert testified the goodwill percentages for comparable sales
of dental practices in Oklahoma "fall in a pretty tight grouping with the lowest
being 40 percent and the highest being 53 percent[.]" He testified that two of
the comparable sales were of dental practices in Oklahoma City (i.e., close to
Wife's practice in Edmond) that were sold in 2011. One of these had a gross
income of $710,000, "in the same range" as Wife's practice. The portion of the
sale price for the goodwill of this practice was $341,302, and the "goodwill
allocation" was, therefore, "48.07 percent of the gross income for the year." He
testified, "that's a pretty good comparable. And I thought with all these
others, everything is there within a pretty tight bunch. Everything is just
pretty close. There's not too much variation within those numbers."
¶21 Husband's expert testified he also reviewed national "Goodwill Registry
information" that included data from 1,949 dental practice valuations. He
testified there was so much data that he only looked at sales from the most
recent year, 2011, and only at sales of dental practices that were located in
urban areas and that had a gross income between $700,000 and $899,000. The
goodwill percentages from these sales ranged from 37% to 70%. One of the sales
was of a dental practice in Oklahoma that had a gross income of $715,940 and a
goodwill percentage of 48.47%, i.e., the goodwill percentage adopted by
Husband's expert. Husband's expert testified he believed this particular sale
"was a really good comparable." He testified there was "a lot of consistency in
the goodwill values within each of these that were selected that fell within
somewhat the same gross income range. And . . . the average of these goodwill
percentages is 52.92[%]." However, he testified he selected a slightly lower
percentage - 48.47% - because it was the same goodwill percentage as the
Oklahoma sale in the Goodwill Registry, and also because it was approximately
the same goodwill percentage as the sale of the Oklahoma dental practice,
discussed above, with a gross income of $710,000 and a goodwill percentage of
48.07%.
¶22 We conclude that the method utilized by Husband's expert adequately
distinguished between "personal" and "enterprise" goodwill. That is, it
distinguished between the goodwill of the dental practice that, according to
comparable sales, constitutes a marketable asset, and that portion of the
prestige or expectation of continued public patronage of Wife's practice that is
not marketable because dependent on her continued presence. The trial court,
therefore, erred when it found Husband's expert's valuation did "not separate
personal and enterprise goodwill," and when it reduced Husband's expert's
valuation on this basis.
¶23 Because the trial court adopted Husband's expert's valuation method but
reduced the value of the dental practice to $160,686.61, it follows that the
trial court implicitly determined the goodwill percentage to be around 20%,
rather than the 48.47% proposed by Husband's expert. However, the range of
marketable goodwill percentages in the first set of data relied upon by
Husband's expert was from 40% to 53%.6 In the second set of data relied upon by Husband's
expert, the range was from 37% to 70%. We conclude the trial court's
determination regarding the fair market value of the goodwill of the practice is
clearly against the weight of the evidence.
¶24 Accordingly, we reverse the trial court's valuation of Wife's dental
practice, and we remand with directions to the trial court to recalculate an
appropriate value for the dental practice within the range of the evidence
presented and in a manner consistent with this Opinion. Following a
recalculation of the practice's value, the trial court is directed to
recalculate the amount of property division alimony, and to make any other
adjustments as may be required for an equitable division of the marital
estate.
II. Value and Ownership of the Bulldozer (Husband's
Argument)
¶25 Husband asserts he and Wife had only a one-half interest in the
bulldozer, and that the other one-half interest was owned by his brother.
Husband further asserts the bulldozer is worth only $4,000, and that Husband and
Wife's interest is, therefore, worth only $2,000. He argues the trial court
erred by awarding him "[t]he bulldozer at a value of $10,000.00."
¶26 As to Husband's assertion that the bulldozer is worth only $4,000, Wife
testified she believes the bulldozer is worth anywhere between $10,000 and
$27,000, and Husband admits he testified he bought the bulldozer for nearly
$10,000 in 2005. As to the ownership of the bulldozer, Husband asserts the
bulldozer is owned equally with his brother - he testified his brother paid half
the price when they bought it. Wife does not deny this assertion, and testified,
on cross-examination, that she has seen two checks from Husband's brother
totaling "[c]lose" to "about half of the purchase price" of the bulldozer.
¶27 We conclude the trial court's determination as to the value of the
bulldozer is not clearly against the weight of the evidence. However, we
conclude the trial court erred in its determination as to ownership, and that
the trial court should have determined Husband's brother owns a one-half
interest equal to $5,000 of the total $10,000 value. Therefore, the trial court
should have awarded Husband a one-half interest in the bulldozer at a value of
$5,000, and the divorce decree is modified accordingly.
III. Credit to Wife for Two 401(k) Loans (Husband's
Argument)
¶28 Husband argues the trial court erred in reducing the marital estate based
on two "401k [loans] with Fidelity Investments" in the total amount of $22,510.
He first argues that these loans were not appropriate business loans for Wife's
dental practice. Husband states that even Wife's expert testified that if these
loans exist, they would constitute personal loans rather than business loans.
Husband also argues Wife failed to present evidence, other than her own
self-serving testimony, as to the existence of these loans.
¶29 In response, Wife does not deny she failed to present evidence other than
her unsupported testimony regarding the existence of these loans,7 but argues
"that it would be absurd for [me] to simply make up the existence of these debts
and lie under oath regarding the existence of the debts . . . ."
¶30 We conclude the trial court erred in finding there exists marital debt in
the form of two loans with Fidelity Investments in the total amount of $22,510.
Wife testified the loans were taken solely for business purposes. This testimony
was contradicted by Husband's expert who testified, among other things, that "a
401K may not, by law, make a loan to its planned sponsor," Wife's dental
practice. Absent any documentation demonstrating the existence of these loans,
we conclude the trial court's determination in this regard is clearly against
the weight of the evidence. Therefore, this portion of the divorce decree is
reversed.
IV. Husband's Plan B Retirement Benefits (Wife's
Argument)
¶31 Finally, we reject Wife's argument that the trial court erred in its
determinations regarding the Plan B benefits. Retirement pensions constitute
jointly-acquired property subject to equitable division in a divorce, absent a
specific statutory exemption. Christmas v. Christmas, 1990 OK 16, ¶ 9, 787 P.2d 1267 (citation omitted).
"Whenever a divorce occurs, either before or after retirement, a district court
possesses the power to award the respective spouses the property to which each
of them is entitled. Pension benefits accumulated during the marriage as jointly
acquired property are subject to equitable division in a divorce." Tubbs v.
State ex rel. Teachers' Ret. Sys. of Okla., 2002 OK 79, ¶ 12, 57 P.3d 571 (citation omitted)
(emphasis omitted). Unlike disability benefits received after a divorce to
replace post-marriage wages, which constitute the recipient's separate property,
retirement pensions "function as a substitute for life savings" - i.e., "[i]f a
worker was not provided retirement coverage, the additional wages received would
presumably be saved for superannuation. These savings, earned during the
marriage, would unquestionably constitute joint property." Christmas, ¶
7. Here, as the trial court explained in the divorce decree, the parties
stipulated that Husband's "defined benefit plan accruing from date of marriage"
and through the date the petition for divorce was filed constitutes marital
property subject to equitable division. The trial court awarded Wife
one-half of the marital portion only of [Husband's] Oklahoma
Firefighter's Pension and Retirement System defined benefit plan, the same
to be accomplished by a proper Domestic Relations Order which the Court
shall retain jurisdiction over this matter to the extent necessary to ensure
and enforce completion and proper processing of a Domestic Relations
Order.
¶32 However, Wife argues the Plan B benefits, in which Husband has not
elected to participate, are also subject to equitable division. That is,
Wife admits "it is undisputed that, as of the date of trial, [H]usband had not
elected to participate in Plan B," but argues that because Husband has "gained
the right to choose Plan B benefits at any time he wishes primarily as a result
of marital efforts," those benefits should be divided, in advance of this
hypothetical election, as marital property. Although the Plan B benefits in
question constitute retirement benefits rather than disability benefits, we
disagree with Wife that the mere possibility of Husband electing to participate
in Plan B in the future necessitates the division of those benefits by the trial
court. "A district court possesses the power to adjudicate all of the property
rights held by the spouses in the retirement benefit," Tubbs, 2002 OK 79, ¶ 17, but the Plan B
retirement benefits at issue here are merely speculative and hypothetical.
¶33 In the divorce decree, the trial court explained that Husband was not
currently participating in Plan B and had not elected to do so. Regarding Plan
B, the trial court found
it will not divide Plan B, it is not an asset to be divided; provided,
however, the Court wants the record to be clear in its final order that if
[Husband] should elect Plan B, that to the extent it may affect anything
that [Wife] would be entitled to without that election, [Husband] is
required to indemnify her and make sure that she is made whole. For example,
if it reduces the monthly amount [Wife] is entitled to receive under the
retirement as a result of [Husband's] election, then [Husband] is required
to make up that difference. The fact that [Husband] may elect Plan B is not
going to be allowed to affect what [Wife] has been awarded from the defined
benefit retirement plan.
¶34 We conclude that the trial court's determinations regarding Husband's
retirement benefits satisfy the requirement that the property acquired during
the marriage be divided in a manner that is fair, just and reasonable, 43 O.S. Supp. 2012 § 121(B), and the
trial court did not err in its determinations regarding Husband's retirement
benefits.8
CONCLUSION
¶35 We affirm the trial court's determinations as to the Plan B benefits.
However, we reverse the trial court's valuation of Wife's dental practice, and
we remand with directions to the trial court to calculate an appropriate value
for the dental practice within the range of the evidence presented and in a
manner consistent with this Opinion. We also reverse and modify the trial
court's determination as to the bulldozer. The trial court should have awarded
Husband a one-half interest in the bulldozer at a value of $5,000. Finally, we
reverse the finding that there exists marital debt in the form of two loans with
Fidelity Investments in the total amount of $22,510. Following a recalculation
of the dental practice's value, and after taking into account the modification
of the bulldozer award and reversal of the finding as to the two loans, the
trial court is directed to recalculate the amount of property division alimony,
and to make any other adjustments as may be required for an equitable division
of the marital estate.
¶36 AFFIRMED IN PART, REVERSED IN PART, AND REMANDED WITH
DIRECTIONS.
WISEMAN, P.J., and GOODMAN, J., concur.