Wood v. Wood

361 S.W.3d 36, 2011 WL 5926162

• Court: Missouri Court of Appeals
• Decided: November 29, 2011
• Docket: ED 96218
• Status: Published

Opinions

KENNETH M. ROMINES, J.

Facts and Procedural History

Heidi Wood (“Wife”) filed a petition for dissolution of marriage from Stephen Wood (“Husband”) on 6 February 2009. The Commissioner heard the matter on 4-6 May 2010, and issued initial findings of facts and conclusions of law on 14 October 2010. Following motions to amend and motions for rehearing, the Commissioner entered amended findings of facts and conclusions of law on 26 December 2010. The circuit court accepted the Commissioner’s findings and entered final judgment on 6 January 2011. Husband now seeks relief from this judgment. To avoid repetition, additional facts will, be provided in the discussion section as needed.

Standard of Review

The standard of review in divorce proceedings is the same as in any other court-tried case. ForaKer v. Foraker, 133 S.W.3d 84, 92 (Mo.App. W.D.2004). The trial court’s judgment should be affirmed unless it is not supported by substantial evidence, it is against the weight of the evidence, or it erroneously declares or applies the law. Murphy v. Carron, 536 S.W.2d 30, 32 (Mo. banc 1976).

Discussion

Husband submits six points on appeal:

(1) Whether the trial court erred in valuing Husband’s thirty percent ownership of Stephens Flooring by relying on Wife’s expert’s calculation rather than Husband’s expert’s calculation;

(2) Whether the trial court erred in declaring the promissory note obligation to Tom Wood as marital debt, and in assigning it solely to Husband;

(3) Whether the trial court erred in its property valuation of the Northwestern Mutual Life Insurance policy at $64,400 and in classifying this policy as marital property awarded to Husband;

(4) Whether the trial court erred in determining the appropriate amount of maintenance awarded to Wife;

(5) Whether the trial court erred in awarding attorney’s fees to Wife in the amount of $50,000;

(6) Whether the trial court erred in its property division of Husband’s 401K because the court’s language is vague and ambiguous and could be interpreted that Husband would be responsible for penalties and taxes for the 401K liquidation both now and when distributions are made at retirement age.

Initially, we note that at oral argument Husband withdrew his claim of error with respect to the 401K. We are thus left with five points on appeal.

I.

Husband first argues that the trial court erred in valuing Husband’s thirty percent ownership interest in Stephen’s Flooring when it relied on Wife’s expert’s (Ken Diel)¹ calculation rather than Husband’s expert’s (John A. Reed)² opinion. The trial court’s reliance on Diel’s calculation in valuing Husband interest in Stephen’s Flooring was a misapplication of the law, and we remand for a proper valuation of Husband’s shares as of the date of the divorce.

Husband is an employee and part owner of Stephen’s Flooring Company (“Stephens”), a closely held corporation. While valuation of the stock of a closely held corporation can be a difficult matter,³ in a dissolution proceeding, the object of a business valuation is to determine fair market value for the purpose of application of the equitable distribution rules to arrive at a fair property division. Thill v. Thill, 26 S.W.3d 199, 203 (Mo.App. W.D.2000). “The very attributes that simplify valuation of a publicly held stock, a ready market and historical sales record, are absent with a closely held corporation.” Id. (citing F. Hodge O’Neal & RobeRT B. Thomp-soN, Close CoRporations & LLCs: Law & Practice § 1.02 (3rd ed.2000)). “There are a number of various valuation methodologies which fall within one of the following broad categories: (1) earning approach; (2) liquidation (“underlying asset”) approach; and (3) comparable sale approach.” Id. (citing O’Neal, supra, at § 7.26).

At trial, both Husband and Wife presented testimony from different experts as to the value of Husband’s interest in Stephen’s. Wife’s expert, Ken Diel, performed a calculation using a formula provided in a Buy-Sell Agreement that Husband and the other two shareholders of Stephen’s entered into in 2007 when they all purchased the company. Diel specifically testified that he was merely retained to compute this formula and not to provide an opinion as to fair market value at the time of the dissolution:

Defense Counsel: Were you engaged to provide an opinion as to fair market value or fair value of Stephen’s Flooring?

Mr. Diel: No ... I was asked to consult on the agreement here and determine — looking at the documents to determine how to calculate the value of this company. I read the buy-sell agreement and felt that it showed calculation of this, and there was not reason to do a valuation in any format.

The specific formula in the Buy-Sell on which Diel relied provides that the total shares’ value equals the last appraised value of the company, plus or minus earnings or losses, less “dividends” paid or declared by the Board. Using this approach, Diel calculated the total value of Stephen’s Flooring to be $3,542,296, with Husband’s thirty percent share at $1,062,688.

Husband’s expert, John A. Reed, conducted an actual assessment of Stephen’s Flooring, and provided an opinion as to the fair market value (FMV) of Husband’s thirty percent interest. Reed relied on traditional measures of valuing closely-held corporations — accounting for goodwill, minority ownership, the current recession, and other measures — and calculated the FMV of Husband’s thirty percent interest at $325,000.

The trial court found Diel’s testimony more persuasive and credible than Reed’s testimony and relied on the Buy-Sell computation in determining the value of Husband’s share of Stephen’s. While value can be a determination of fact by the trial court to which we give great deference, and no one formula or method of determining value is binding or conclusive,⁴ the rule is that the date of valuation of marital property is the date of trial.⁵

Diel’s calculation failed to comply with the above stated rule because the Buy-Sell formula, as interpreted by Diel, does not seek a fair value or fair market value of Stephen’s Flooring or Husband’s shares. Thill v. Thill, 26 S.W.3d 199, 203 (Mo.App. W.D.2000). Diel readily admitted this fact. Furthermore, the formula does not even employ a current appraisal of Stephen’s Flooring as part of the calculation of present share value, and instead uses the historical value of company in 2007 at $3,000,000 as the starting point. Clearly then, Diel’s testimony does not value the property as of the date of the divorce.

Generally, the trial court can accept the opinion of one expert as to value over another and can prefer one method of valuation over competing methods based on the particular facts of the case and the circumstances of the corporate entity involved. Flarsheim v. Twenty Five Thirty Two Broadway Corp., 432 S.W.2d 245, 255 (Mo. banc 1968). But, where an expert’s testimony does not attempt to determine FMV, the trial court simply cannot find it more persuasive and credible than another and rely on such testimony in valuing those shares. The reliance by the trial court of Diel’s testimony was a misapplication of the law. Therefore, we reverse and remand for a proper determination of the value of Stephen’s Flooring as of the date of the divorce.

Inasmuch as we remand on the issue as to fair market value, we likewise reverse and remand as to the other four issues set out by Husband as these issues will be impacted by a correct valuation of Stephen’s Flooring stock values.

The judgment is reversed and remanded.

KATHIANNE KNAUP CRANE, P.J., concurs. LAWRENCE E. MOONEY, J., dissents in separate opinion.

1 . Diel has the following qualifications: BS in Accounting: CPA for thirty-eight years; Personal Financial Specialist since 2001; Certified Valuation Analyst since 1997; and Mortgage Broker.

2 . Reed has the following qualifications: BS in Business Administration; MBA; and certified as Accredited Senior Appraiser in 2003. He testified that he has been conducting valuations since 1998, and he is a senior manager in a business consulting group.

3 .Hoffmann v. Hoffmann, 676 S.W.2d 817, 826 (Mo. banc 1984).

4 . In re Marriage of K.B., 648 S.W.2d 201, 206 (Mo.App.S.D.1983); Miranda v. Miranda, 596 S.W.2d 61, 65 (Mo.App.W.D.1980)

5 . Taylor v. Taylor, 736 S.W.2d 388, 391 (Mo. banc 1987).