RENDERED: DECEMBER 15, 2022 TO BE PUBLISHED
Supreme Court of Kentucky 2021-SC-0532-DG
LISA THIELMEIER APPELLANT
ON REVIEW FROM COURT OF APPEALS V. CASE NO. 2020-CA-0707 JEFFERSON CIRCUIT COURT NO. 17-CI-500023
KENNETH THIELMEIER APPELLEE
OPINION OF THE COURT BY JUSTICE LAMBERT
AFFIRMING IN PART, REVERSING IN PART, AND REMANDING
Lisa Thielmeier (Lisa) appeals from a decision of the Court of Appeals which
affirmed several Jefferson Circuit Court rulings in a dissolution proceeding
between Lisa and her former husband Kenneth Thielmeier (Ken). After review,
we affirm in part, reverse in part, and remand for further proceedings
consistent with this opinion.
I. FACTUAL AND PROCEDURAL BACKGROUND
Lisa and Ken met when they were seniors in high school and dated
throughout college. They were wed on July 19, 1985. At the time, both Ken
and Lisa were pursuing post-graduate degrees. Lisa taught elementary school
from 1985 thought 1989, and worked as a guidance counselor from 1990 to
1991. After the couple’s first child was born in 1991, Lisa left the workforce and did not return. Over the ensuing three decades of marriage, Ken and Lisa
had five more children to whom Lisa was a full-time stay-at-home mom.
After completing medical school Ken became an anesthesiologist. In
2008, he began an anesthesiology practice, Anesthesiology Consultants
Enterprises, Inc. (ACE) with his partner Dr. Patrick Shanahan (Dr. Shanahan).
Being both an owner of and practicing physician for ACE required Ken to work
sixty to sixty-five-hour work weeks. ACE proved to be lucrative, and the family
lived a very comfortable lifestyle throughout the marriage.
By January 1, 2016, Ken and Lisa considered themselves separated,
though Ken was still living in the marital home. On November 8, 2016, Ken
filed for a dissolution of marriage, and he moved out of the home on April 1,
2017. At that time, only their youngest child, Samuel, was still a minor.
Samuel continued living with Lisa after Ken moved out.
After several years of litigation, the divorce action’s two-day trial began
on October 3, 2019. On the same morning, the parties entered into a set of
agreed stipulations. The stipulations settled several issues leaving only the
following, in relevant part, for the court to decide: the division of Ken’s ACE
401(k); the valuation of Ken’s ownership interest in ACE; the division of Ken’s
ownership interest in ACE; spousal maintenance; and attorney’s fees.
A. The division of Ken’s ACE 401(k).
The parties had a total of five retirement accounts between them. Under
their agreed stipulations, four of those accounts were divided equally. The
division of the remaining account, Ken’s ACE 401(k), was decided by the court.
2 An accounting of Ken’s ACE 401(k) contributions and amounts from May 1,
2017, through September 15, 2019, was entered into evidence. The court’s
findings of fact and conclusions of law stated the following:
The largest retirement account owned by the parties is Ken’s ACE 401(k). According to documents provided to the Court, the balance of the account as of September 15, 2019, was [$1,481,893.25]. It is Ken’s request that the ACE 401(k) be divided equally as of May 1, 2017 (shortly after he vacated the marital residence). He would like to be awarded 100% of the contributions into his retirement account from May 1, 2017, to present. He contends that KRS1 403.190(1)(a) permits him to retain 100% of the post-separation contributions to his 401(k). This Court agrees.
The court ordered that the ACE 401(k) be equally divided between Ken and Lisa
as of May 1, 2017, and that Ken be awarded 100% of the contributions after
May 1, 2017.
B. The valuation and division of Ken’s ownership interest in ACE.
ACE is an anesthesiology group started in 2008 by Ken and Dr.
Shanahan. ACE is a closely held professional limited liability company that
provides anesthesiology services to one hospital, Audubon Hospital. ACE’s
exclusive contract for services with Audubon Hospital is the company’s only
contract, and it is renewed every three years. Without this contract with
Audubon Hospital, ACE would have no business and no income. The
1 Kentucky Revised Statute.
3 company’s only assets are its accounts receivable, its cash account, and a few
computers.
During the relevant time period in this case, there were seven other
doctor-owners of ACE in addition to Ken. Each of those owners have the same
employment contract, which contains a buyout clause in the event of voluntary
or involuntary termination. As ACE’s biggest asset is its accounts receivable,
the buyout clause multiplies the net adjusted value of ACE’s accounts
receivable by the doctor’s individual ownership percentage. That amount is
then paid out over eighteen months.
The court heard testimony from ACE’s business manager, Ryan Nunnelly
(Nunnelly),2 regarding the value of Ken’s ownership interest using the buyout
clause’s formula. On the date Dr. Shanahan retired, June 30, 2018, he and
Ken each owned a 26% interest in ACE. Using the buyout clause’s formula,
Nunnelly opined that on June 30, 2018, Ken’s 26% would have rendered a
buyout amount of $209,721. This was the same amount paid to Dr. Shanahan
when he retired on that date. After Dr. Shanahan retired, his 26% interest was
distributed amongst ACE’s other owners resulting in Ken’s ownership interest
increasing to 35.14%. Nunnelly further opined, using the same formula, that a
year later on June 30, 2019, Ken’s 35.14% interest would have resulted in a
buyout amount of $232,720.
2 Nunnelly is not an ACE employee. Nunnelly works for Merrick Management, a
professional services organization that ACE contracts with for financial services.
4 The court heard testimony from two other experts concerning ACE’s
valuation. The first, Robert Kester (Kester), was the court’s appointed expert.
The circuit court’s fact findings regarding his valuation are as follows:
Mr. Kester explained that there are three generally accepted methods for valuing a business – the capitalization of benefits method (sometimes called the income approach), asset approach, and market approach. Mr. Kester considered the asset approach and the income approach; he ultimately relied on the adjusted book value method under the asset approach in determining the value of Ken’s interest.
Mr. Kester explained that he disregarded the capitalization of benefits method because the value of the entire practice had a negative value. When the calculation of the capitalization of benefits produces a negative value, the company has no goodwill value. Had Mr. Kester determined that ACE had a value in excess of its tangible assets, or goodwill value, he would have been required under Kentucky law to further determine what portion of the goodwill was personal versus enterprise goodwill. In the present case Mr. Kester determined that ACE does not have any goodwill value.
The primary asset of ACE is the accounts receivable which made up the majority of the book value as calculated under the asset approach. Mr. Kester determined the total value of ACE to be $567,000. He then applied a 5% minority of interest discount and a 5% lack of marketability discount. Mr. Kester explained that the discounts were appropriate because Ken owns a minority interest in ACE and he could not easily sell his interest in the practice because it is not a public company.
Mr. Kester valued Ken’s 26% interest in ACE as of June 30, 2018, to be $133,120. Mr. Kester acknowledged that Ken’s interest as calculated by the Employment Agreement on the same date would be $209,721. He testified that he had never before performed a valuation when an actual buyout [of] an owner took place on the same day as the valuation.
The second expert was Lisa’s hired expert, Roman Basi (Basi). The circuit
court found the following with regard to his valuation:
5 [Basi] ... valued ACE using the capitalization method and came to a significantly higher result. Mr. Kester testified that he believed it was inappropriate to add back expenses for profit-sharing, the cost of life and disability insurance policies for all employees, and a portion of Ken’s salary [which Basi did in his calculation]. In addition, Mr. Basi did not deduct minority of interest or lack of marketability discounts.
Mr. Basi valued Ken’s [35.14%] interest in ACE at $1,350,456. However, the court found Mr. Kester’s testimony about the method and calculation of valuing ACE to be persuasive. Ken agreed to value this ownership interest in ACE according to the Employment
Agreement as calculated by Mr. Nunnelly even though the result is higher than Mr. Kester’s evaluation.
After considering all three valuation methods and results, the circuit court
found “that the value of Ken’s ownership interest in ACE is the value as
calculated in his Employment Agreement.” The court reasoned that there was
“no reason to believe that the amount actually paid to Dr. Shanahan for his
interest in ACE was anything other than fair market value.” Accordingly, the
court found that Ken’s 26% ownership interest as of June 30, 2018, was
valued at $209,721, while his 35.14% ownership interest as of June 30, 2019,
was worth $232,720.
Regarding the division of Ken’s ownership interest, Ken requested that
his ownership interest as of June 30, 2018, be divided equally between himself
and Lisa. But he further asked that the increase in value after June 30, 2018,
be awarded to him solely. He acknowledged that the increase was martial
property, but argued that by June 30, 2018, he and Lisa were already
separated, and she therefore did not contribute to his attaining the increase in
value. Lisa argued that the percentage to be divided was 35.14% because that
6 would be the ownership percentage on the date the divorce decree would later
be entered. The circuit court ruled:
[T]he court finds that it is appropriate to value Ken’s ownership interest as of June 30, 2018, when Dr. Shanahan retired. Even though Ken currently owns a greater share of ACE, the Court finds that the additional shares acquired in 2018 should be awarded to him solely. The parties shall equally divide the value of Ken’s ownership interest in ACE as calculated by his Employment Agreement as of June 30, 2018.
C. Spousal Maintenance
Lisa also requested that she be awarded spousal maintenance. Pursuant
to KRS 403.200(1), an award of maintenance is only appropriate if the spouse
seeking it: (1) lacks sufficient property to provide for his or her reasonable
needs, and (2) is unable to support himself or herself through appropriate
employment.
To determine Lisa’s ability to work and earn money, the court appointed
Linda Jones (Jones) of Vocational Economics, Inc. Jones testified that Lisa had
previously attained a bachelor’s degree in elementary education, a master’s
degree in guidance and counseling, a Rank I in guidance counseling, as well as
three lifetime certificates and endorsements in teaching and counseling. Jones
opined that, given Lisa’s qualifications and previous work experience, returning
to work as an elementary teacher would be Lisa’s best option for employment.
Jones predicted that Lisa could earn between $53,000 and $59,000 per year
working as a full-time teacher. In the alternative, Lisa could earn roughly
$15,000 per year ($1,250 per month) as a substitute teacher working three
days a week. Jones acknowledged that Lisa would likely need to take
7 additional college courses to update herself on teaching practices and
technology beforehand.
Lisa disputed her ability to return to the workforce primarily because of
her youngest son Samuel’s medical condition. In April 2018, a year after Ken
left the marital home, Samuel developed a rare condition called Moyamoya
disease. The disease caused two of the four major arteries that supplied blood
to Samuel’s brain to become partially or entirely blocked. Samuel went
through three brain surgeries to correct the issue, which were successful. At
the time of the trial, Samuel was still experiencing daily headaches which
varied in severity. Samuel was able to attend high school, but frequently had
to come home early due to headaches (impressively, Samuel was able to
maintain an A and B average in school throughout his entire ordeal). Ken
testified that Samuel’s headaches were likely to diminish as his condition
stabilized, and he had recently responded very well to Botox injections as a
form of treatment.
Lisa argued that she was unsure of her ability to have a full-time job due
to her role as Samuel’s primary caregiver. She testified that she must be
available at a moment’s notice to pick Samuel up from school if his headaches
become too severe, which was a frequent occurrence. Ken countered that
either he or the parties’ other adult children who live in Louisville could pick
Samuel up from school if Lisa was unavailable. Lisa also cited her age, 57, and
several medical conditions as reasons that returning to teaching was not
feasible. However, as the court noted in its order, “she did not provide the
8 court with any documentation of a medical condition that would prevent her
from maintaining gainful employment.”
The court’s order stated that it was “skeptical that Lisa could return to
teaching full time at her age after thirty years away from the classroom.” It
further stated it was “not certain how realistic it [was] to expect Lisa to work
full time as a classroom teacher, a job which typically has very little flexibility,
given the unpredictable nature and frequency of Samuel’s needs.”
Nevertheless, the court imputed an income of $1,500 per month to Lisa.
Concerning whether Lisa had sufficient property to pay for her
reasonable needs, Lisa provided a list of her monthly expenses prepared by her
financial planner, Brian Haehl (Haehl). Haehl prepared his report by utilizing
the parties’ joint checking account records and Lisa’s credit card history. The
court found that both parties provided significant financial support for their
adult children. The court consequently deducted expenses totaling $1,591 “for
fuel, restaurants, and groceries for the parties’ adult children” from Lisa’s
monthly expenses. The court also deducted several expenses that Lisa was no
longer paying. Finally, the court deducted $700 per month “for savings” and
$2,083 per month “for retirement contributions.”
After making the foregoing deductions, the court found that Lisa’s
reasonable monthly expenses were approximately $13,000, and that she did
not have sufficient property or income to meet her monthly financial needs. It
accordingly found that an award of maintenance was appropriate.
9 As for the amount of Lisa’s maintenance, the court cited KRS
403.200(2)’s list of factors that it was mandated to consider in awarding
maintenance. It then applied the following analysis under those factors:
Ken is also 57 years old. He has Type 1 diabetes; his condition is well managed and does not currently impede his ability to work as an anesthesiologist. During the parties’ marriage, Ken was the family’s sole source of income. The parties maintained a comfortable lifestyle, provided their children with private educations and other amenities. The result is that the parties have not accumulated much joint savings. The parties’ retirement accounts will be equally divided as will the equity in their marital residence. Ken’s income is the remaining asset of value. While there has been some fluctuation in Ken’s annual gross income in recent years, in 2018, he had gross monthly income of $65,040 and net (after tax) income of $37,387.
The court has reviewed Ken’s list of monthly expenses. He included expenses he pays for the parties’ adult children and Samuel’s tuition at Trinity High School. The court will also consider Ken’s obligation to pay child support and a proportional share of Samuel’s extraordinary medical expenses as set out herein. The Court finds that Ken’s regular monthly expenses are approximately $14,000, including his child support obligation. The court finds that Ken’s income is sufficient to meet his reasonable needs and to pay child support and maintenance to Lisa.
Lisa is awarded significant property herein, including retirement benefits which will be a future source of regular income. Given the length of the parties’ marriage and Ken’s financial support for Lisa during the parties’ separation, the court finds that it is appropriate to award Lisa maintenance for a period of eight years. At that time, both parties will be over 65 and eligible to withdraw retirement benefits. During the period of Lisa’s maintenance award, she will be receiving significant income, which she can supplement through her own employment to plan for her retirement.
The court awarded Lisa maintenance of $12,500 per month to be paid for
ninety-six months.
10 D. Attorney’s Fees
Finally, Lisa requested that the outstanding balance of her attorney’s
fees as well as the $17,500 loan she received from her brother to pay her
expert. The court made the following findings:
Under KRS 403.220, this Court is authorized to award attorney’s fees after considering the financial resources of the parties. In the present case . . . Ken has paid $47,108.00 to his own attorney and advanced $33,074.00 to Lisa’s attorney. In addition, Ken paid $16,630.00 to Blue & Co. for Mr. Kester’s report and testimony and $3,100.00 to Linda Jones.
Lisa has incurred attorney’s fees of $52,624.37, of which $23,673.37 is outstanding. Lisa also incurred $23,500 in expert witness costs.
This Court ordered Ken to advance $25,000 to Lisa’s attorney in March 2019 after having ordered a previous advance of $8,074.15. The allocation of prior advances was reserved. Ken is requesting that $10,000 of the monies advanced be allocated to Lisa’s share of the marital estate.
The court ruled that each party was responsible for his or her own outstanding
attorney’s fees, and that Ken was not responsible for paying Lisa’s expert
witness or repaying the loan from her brother.
Following the entry of the circuit court’s order, Lisa filed both a motion
for specific factual findings and a motion to alter, amend, or vacate pursuant to
CR3 59.05. In her motion for specific factual findings, Lisa requested more
specific findings regarding the financial needs of the parties. Specifically, “in
the deductions taken and specific dollar amounts.” In her motion to alter,
amend, or vacate, Lisa argued: that the court erred by awarding 100% of Ken’s
3 Kentucky Rule of Civil Procedure.
11 401(k) contributions to Ken after April 1, 2017; that the court erred by
awarding 100% of the ACE’s ownership interest to Ken after June 30, 2018;
that the court should reconsider “the valuation of the practice as a whole”; that
the court should revisit the issue of maintenance, taking into consideration
how the $68,379.50 in equalization payments Lisa owed Ken under the court’s
order,4 as well as the court’s ruling on attorney’s fees, impacted Lisa’s monthly
expenses; and that the court’s ruling on attorney’s fees was error as Ken was
able to pay all of his litigation expenses with martial funds, but Lisa was not.
In a subsequent order, the circuit court overruled both of Lisa’s motions.
First, regarding the valuation and division of Ken’s ownership interest in ACE,
the court ruled:
As to the valuation of [ACE], this Court affirms the valuation of the marital share of Ken’s interest as co-owner of that medical practice. The Court, as stated in the February 21, 2020, Findings of Fact and Conclusions of Law, used the fair market value as determined by [the] buyout of one of the partners in 2018. The court’s explanation of this calculation in that Order clearly references consideration of the testimony of both experts who testified at the hearing with due consideration given to each approach. The Court declines to make further findings or to alter previous findings on the issue of valuation of the marital share of the medical practice.
The Court recognizes that the value of Ken’s interest in ACE at the date of the Decree of Dissolution is a marital asset under Stallings v. Stallings, 606 S.W.2d 163 (Ky. 1980). However, it is within this Court’s discretion to divide martial assets as it deems equitable. The Court awarded Ken the increase in value of his interest in the
4 The court’s order recounts that Lisa owed Ken $178,154.00 for his share of the equity in the marital residence in accordance with their agreed stipulations, while Ken owed Lisa $104,860.50 as her share of his ownership interest in ACE plus $4,914 for the life insurance policies awarded to him under the order. Lisa accordingly owed Ken an equalization debt of $68,379.50.
12 ACE post-separation as sanctioned by the Kentucky Court of Appeals in Story v. Story, [2008-CA-001301-MR, 2009 WL 3486667 (Ky. App. Oct. 30, 2009)]. The Court does not believe that valuation was an error and declines to alter that finding.
Concerning the award of maintenance, the court stated:
[T]he Court rests on the five pages of detailed findings, including reference to and consideration of the factors as set forth in KRS 403.200 contained in the February 21, 2020 Order. The Court points out to Lisa that while the court-appointed expert testified about Lisa’s ability to earn up to $59,000 per year, the Court found that unlikely and, in its calculations, only attributed $1,500 per month for [Lisa’s] income. The Court was not presented with any medical evidence during the trial that Lisa is physically unable to do any type of work. The parties had been separated for over
two years before the Decree of Dissolution was entered; in that time, Lisa made no efforts to obtain gainful employment of any kind. The Court affirms the award of $150,000 per year to Lisa in maintenance payments for the next ninety-six months.
Finally, the court simply stated that it reaffirmed its rulings with regard to the
allocation of attorney’s fees. It did not address Lisa’s arguments concerning
division of the ACE 401(k). The circuit court entered a limited decree of
dissolution of marriage on December 19, 2019.
On appeal, a split Court of Appeals panel affirmed the circuit court’s
rulings in full.5 In her dissent, Judge Caldwell agreed with the majority
opinion save for three issues.6 First, with regard to the division of the ACE
401(k) and the division of the ACE ownership interest, she argued that the
circuit court’s fact findings did “not support an allocation of marital assets
5Thielmeier v. Thielmeier, 2020-CA-0707-MR, 2021 WL 4126889, at *6 (Ky. App. Sept. 10, 2021). 6 Id. at *7 (Caldwell, J., dissenting).
13 being based on the date [Ken] decided to move out of the marital home.”7
Further, the circuit court’s order was fundamentally at odds with itself.
Specifically, the circuit court declined to rule that Lisa could return to full-time
work, in part, due to Samuel’s ongoing needs.8 And yet, it awarded 100% of
the post-separation assets to Ken based on his argument that Lisa contributed
nothing to the marital assets post-separation.9 The dissent asserted that this
division of the assets clearly showed that the circuit court “could not have
considered [Lisa’s] contribution as a homemaker as required by KRS
403.190(1)(a).”10 The circuit court also failed to provide sufficient fact findings
as to why the unequal division of the assets was equitable.11
Judge Caldwell also would have held that the trial court abused its
discretion by allowing Ken to use marital funds to pay all of his attorney’s fees
while Lisa had to borrow funds and use post-divorce assets awarded to her to
pay her legal fees.12 Again, Judge Caldwell would have held that the circuit
court did not provide a sufficient analysis regarding how the facts of the case
led to that ruling.13
7 Id. at *6. 8 Id. at *7. 9 Id. 10 Id. 11 Id. 12 Id. at *8. 13 Id.
14 Lisa now appeals to this Court. Additional facts are discussed below as
necessary.
II. ANALYSIS
Lisa renews her arguments before this Court concerning the circuit
court’s division of Ken’s ACE 401(k); its valuation of Ken’s ownership interest
in ACE; its division of Ken’s ownership interest in ACE; its award of
maintenance; and its ruling on attorney’s fees. We will discuss each in turn.
A. The circuit court erred in its division of Ken’s ACE 401(k).
When dividing martial property in a dissolution proceeding, a trial court
must perform the following steps: (1) categorize each piece of contested
property as either marital or nonmarital; (2) assign each party's nonmarital
property to that party; and (3) equitably divide the parties' marital property.14
Trial courts have broad discretion in dividing marital property, and this Court
may not disturb a trial court’s ruling on the division of marital property unless
it has abused its discretion.15 “The test for abuse of discretion is whether the
trial judge's decision was arbitrary, unreasonable, unfair, or unsupported by
sound legal principles.”16
Here, it was undisputed that Ken’s ACE 401(k) was marital property.
The circuit court noted at the outset in its findings of fact and conclusions of
14 See, e.g., Travis v. Travis, 59 S.W.3d 904, 908-09 (Ky. 2001). 15 See, e.g., Smith v. Smith, 235 S.W.3d 1, 6 (Ky. App. 2006). 16 Commonwealth v. English, 993 S.W.2d 941, 945 (Ky.1999).
15 law that “[t]he parties stipulate that all of their property is marital,” except for a
non-marital piece of real estate that is not at issue. Even absent such a
stipulation, the account was without question martial property under KRS
403.19017 and applicable case law.18 Accordingly, the circuit court first erred
by dividing the ACE 401(k) as of May 1, 2017. Instead, it should have divided
it as of December 19, 2019, the date of the divorce decree.
The circuit court further erred in awarding Lisa nothing of the
contributions Ken made to the 401(k) account after separation. The court
agreed with Ken “that KRS 403.190(1)(a) permits him to retain 100% of the
post-separation to his 401(k) contributions.” But it did not engage in any
analysis as to why it considered that division just under the facts before it.
This alone is grounds for reversal, as a trial court must actually engage with
the KRS 403.190(1) factors when dividing martial property; simply citing the
statute is not enough.19
In addition, KRS 403.190(1)(a) states that when dividing martial
property, the trial court must consider the “[c]ontribution of each spouse to
acquisition of the marital property, including contribution of a spouse as a
homemaker[.]” Based on the circuit court’s citation to KRS 403.190(1)(a), it
17KRS 409.190(3) (“All property acquired by either spouse after the marriage and before a decree of legal separation is presumed to be martial property[.]”). Neither party asserted that any of the exceptions to this statute applied to the ACE 401(k). 18 Stallings, 606 S.W.2d at 164 (holding that all property acquired during a period of separation is martial unless one of the exceptions under KRS 409.190(2) applies). 19Id. at 164 (“[I]n distributing the marital property, the trial court shall consider
the factors in KRS 403.190(1)(a)-(d).”).
16 seemed to rely upon Ken’s sole argument that Lisa did not contribute to the
401(k) after he left the marital residence. This is fundamentally at odds with
the court’s other findings. When addressing spousal maintenance, the court
declined to find that Lisa could return to the workforce full-time, in part, due to
“the unpredictable nature and frequency of Samuel’s medical needs.”
Consequently, under the court’s own finding, Lisa was still contributing to
Ken’s ability to contribute to the 401(k) after he left the marital residence by
being Samuel’s primary caregiver. It is well-established that “the contribution
of a spouse as a homemaker does not necessarily cease when the other spouse
leaves, especially when minor children remain with the homemaker-spouse.”20
For the foregoing reasons, the circuit court’s division of Ken’s ACE 401(k)
account after May 1, 2017, was an abuse of discretion and we reverse. On
remand, the circuit court shall readdress the division of the ACE 401(k) as of
December 19, 2019, the date the divorce decree was entered, and shall explain
why its chosen division is just under KRS 403.190(1)(a)-(d).
B. The circuit court did not err in its valuation of Ken’s ACE ownership interest, but it did err in its distribution of that ownership interest.
Lisa next asserts that the circuit court erred with respect to the method
it adopted in valuing Ken’s ACE ownership interest. She further contends that
the court erred by awarding Ken 100% of the value of his ownership interest
after June 30, 2018. We will discuss each argument in turn.
20 Id.
17 An appellate court may not disturb a trial court’s ruling on the valuation
of a business in a dissolution proceeding unless it was clearly contrary to the
weight of the evidence.21 This Commonwealth has historically declined to
adopt a particular method for valuing an ownership interest in the dissolution
context.22 Rather, appellate courts ask only whether “the trial court’s approach
reasonably approximated the net value of the partnership interest.”23
Lisa first asserts that the circuit court improperly disregarded Basi’s
determination that ACE had goodwill. While it is true that Heller, supra, held
that a business’ goodwill should be considered when determining a business’
value,24 it did not hold that all businesses have goodwill.25
Here, the buyout provision’s formula did not account for goodwill.
However, Kester explained that among the three different methods used to
value a business—the capitalization of income approach, the asset approach,
and the market approach—the adjusted book value method under the asset
approach was the best approach given the nature of ACE as a business. In
reaching this conclusion, Kester also ran the numbers using the capitalization
of income approach. He determined that ACE had a negative value using the
capitalization of income approach, and that it therefore had no goodwill. Basi,
21 Clark v. Clark, 782 S.W.2d 56, 58 (Ky. App. 1990) (citing Heller v. Heller, 672
S.W.2d 945 (Ky. App. 1984)). 22 Clark, 782 S.W.2d at 59. 23 Id. 24 Heller, 672 S.W.2d at 947. 25 Gomez v. Gomez, 168 S.W.3d 51, 55 (Ky. App. 2005).
18 using the capitalization of income approach, found that ACE had goodwill only
after adding back expenses for ACE’s 401(k) plan, the cost of life and disability
insurance plans for all employees, and what he felt was Ken’s excess salary.
Kester believed that each of those add backs were inappropriate and resulted
in an inflated value. The circuit court found that Kester’s method of valuation
was persuasive, i.e., it agreed with Kester that ACE had no goodwill to consider
when determining its value. This was not clearly contrary to the weight of the
evidence.
Next, Lisa argues that the circuit court erred by using the buyout
provision in Ken’s employment agreement to value his ownership interest. She
argues that it should have used Basi’s valuation instead. As noted, the circuit
court did not find Basi’s calculations appropriate. And, in addition to Kester’s
testimony regarding why Basi’s valuation was flawed, Basi also admitted
during cross-examination that he did not know basic things about ACE. For
example, he did not know how many hospitals ACE contracted with or the
duration of those contracts. Further, Basi’s valuation of ACE as a whole was
incredibly high compared to the values reached under the buyout provision
and Kester’s analysis, respectively. As of June 30, 2018, ACE’s overall value
was $806,621 under the buyout provision, and was $567,000 under Kester’s
valuation. Basi’s valuation of $3,843,073 as of June 30, 2018, was well-over
quadruple either of those amounts. We cannot say that the circuit court’s
refusal to use Basi’s valuation was clearly contrary to the weight of the
19 This leaves the circuit court’s decision to value Ken’s ownership interest
in accordance with ACE’s buyout provision. We note first that the valuation of
ACE under the buyout provision was greater than Kester’s valuation, and in
that sense actually benefitted Lisa considering that the court appropriately
declined to use Basi’s valuation. With that said, in general
while buy-sell agreements or corporate by-laws have been rejected as the basis for valuing a professional practice where this would not accurately reflect the value of the business, Clark, supra, 782 S.W.2d at 60, they may be used as a factor in reaching a determination regarding the value of a professional business.26
For example, in Gomez, supra, the Court of Appeals reviewed a trial court’s
valuation of a husband’s 1/3 interest in a radiology practice in a dissolution
proceeding.27 The trial court heard evidence from two experts.28 The
husband’s expert valued his interest in the practice at just over $100,000, and
did not include an amount for goodwill.29 The wife’s expert valued the
ownership interest at $932,880, and included a calculation for goodwill based
on the capitalization of excess earnings approach.30 The trial court adopted the
husband’s expert’s valuation, finding the radiology company’s practice “with
respect to those physicians entering or exiting the practice to be significant.”31
Specifically, the husband submitted
26 Gomez, 168 S.W.3d at 56. 27 Id. at 53. 28 Id. at 55. 29 Id. 30 Id. 31 Id. at 56.
20 affidavits from other physicians who had left the practice that when a physician joined or left the group an evaluation of the current accounts receivable was done. Based on that value a physician entering or leaving the practice had to pay or was paid a percentage of the accounts receivable value.32
The Court of Appeals affirmed, reasoning:
while we would have reached a different conclusion on the evidence presented in this case, the trial court's determination that no goodwill existed because of the historical way in which the practice valued itself is supported by substantial evidence. Further, a review of the expert testimony in this case reveals that [the wife’s] expert's valuation suffered from some problems according to [the husband’s] experts. Our task is to determine whether the trial court's finding of fact as to valuation of the business is clearly erroneous. If substantial evidence exists to support the decision, then we are bound to affirm and we do so here.33
In this case, substantial evidence supported the circuit court’s decision
to use the buyout provision to value Ken’s ownership percentage in ACE. The
circuit court thoroughly recounted the evidence produced by all three experts
and found the buyout provision to be the most appropriate method to value
Ken’s ownership. We cannot hold that this was clearly contrary to the weight
of the evidence and must accordingly affirm.
However, the circuit court did err in its division of Ken’s ownership
interest. Again, we review a trial court’s decision on the division of martial
property for abuse of discretion.34 First, the trial court erred by dividing the
ownership interest as of June 30, 2018. The increase in the accounts value
32 Id. 33 Id. 34 Smith, 235 S.W.3d at 6.
21 was indisputably marital property, and should have therefore been divided as
of the date the dissolution decree was entered. Further, the court provided
absolutely no reasoning as to why it awarded Ken 100% of the ownership
interest. It simply stated, “[e]ven though Ken currently owns a greater share of
ACE, the Court finds that the additional shares acquired in 2018 should be
awarded to him solely.” Similar to the division of the ACE 401(k), the circuit
court was required to address why its chosen division was just under the
factors enumerated in KRS 403.190(1)(a)-(d), and its failure to do so was error.
On remand, the circuit court shall readdress the division of Ken’s
ownership interest. It shall divide the interest as of December 19, 2019, and
shall explain why its chosen division is just under KRS 403.190(1)(a)-(d), taking
into consideration Lisa’s continued contributions as Samuel’s primary
caregiver.
C. The circuit court erred in its ruling on attorney’s fees.
Lisa also argues that the circuit court erred by failing to award her the
outstanding balance on her attorney’s and expert’s fees. Pursuant to KRS
403.220
[t]he court from time to time after considering the financial resources of both parties may order a party to pay a reasonable amount for the cost to the other party of maintaining or defending any proceeding under this chapter and for attorney's fees, including sums for legal services rendered and costs incurred prior to the commencement of the proceeding or after entry of judgment.
22 A trial court’s ruling concerning an award of attorney’s fees in a dissolution
action will not be disturbed on appeal absent an abuse of discretion.35
Lisa requested that the court award her outstanding attorney’s fees
totaling $23,673.37, and outstanding expert fees totaling $17,500, i.e., money
to repay her brother for the loan he gave her to pay for her expert. The court
denied her request, citing that Ken paid for both of the court’s appointed
experts, and had already “advanced $33,074.00 to Lisa’s attorney.” This ruling
resulted in Ken owing no outstanding balance to his attorneys, while Lisa owes
her attorneys and expert $41,174.
Lisa’s argument is simple: until the divorce decree was entered, all of the
funds used to pay lawyers and experts were martial property. Ken was
therefore able to pay for all of his litigation expenses using martial funds, but
Lisa was not. We agree with Lisa that this decision was unreasonable and
unfair and was accordingly an abuse of discretion. We reverse and order that
on remand Lisa be awarded $23,673.37 for her outstanding attorney’s fees,
and $17,500 for her outstanding expert fee.
D. Given this Court’s other holdings herein, reconsideration of maintenance is required.
Lisa also alleges that the circuit court made several errors in its award of
maintenance. We decline to address those arguments here, as maintenance
will necessarily have to be re-addressed by the court after it rules on the
division of the ACE 401(k), the ownership interest in ACE, and awards Lisa
35 Sexton v. Sexton, 125 S.W.3d 258, 272 (Ky. 2004).
23 attorney and expert fees consistent with this opinion. We hold only that the
circuit court did not err by deducting expenses from Lisa’s monthly
expenditures for expenses related to the parties’ adult children. Even if such
expenses were part of the parties’ standard of living during the marriage,
spousal maintenance only contemplates necessary living expenses for the
spouse, not the spouse’s adult children. Lisa is free to raise all other
arguments raised before this Court to the circuit court for consideration. The
circuit court is directed on remand to reconsider the award of spousal
maintenance by applying the appropriate statutory factors under KRS 403.200.
III. CONCLUSION
Based on the foregoing, we affirm in part and reverse in part. We
remand to the circuit court for further proceedings, as the court deems
appropriate, consistent with this opinion.
All sitting. All concur.
COUNSEL FOR APPELLANT:
John Harold Helmers, Jr. Melina Ann Hettiaratchi Helmers & Associates
COUNSEL FOR APPELLEE:
Peter James Catalano Melanie Lee Straw-Boone Straw-Boone Doheny Banks & Mudd, PLLC