HAROLD TATUM, JR. v. PATRICIA L. TATUM
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RENDERED: JULY 2, 2004; 2:00 p.m.
NOT TO BE PUBLISHED
Commonwealth Of Kentucky
Court of Appeals
NO. 2001-CA-002140-MR
HAROLD TATUM, JR.
APPELLANT
APPEAL FROM JEFFERSON FAMILY COURT
HONORABLE ELEANORE M. GARBER, JUDGE
ACTION NO. 99-FC-008085
v.
PATRICIA L. TATUM
APPELLEE
OPINION
AFFIRMING
** ** ** ** **
BEFORE:
Judge.1
COMBS, Chief Judge; DYCHE, Judge; and EMBERTON, Senior
COMBS, CHIEF JUDGE.
Harold Tatum, Jr., appeals from the portion
of a supplemental decree dissolving his marriage to Patricia L.
Tatum that divided the parties’ property and from an order
awarding Patricia a common-law judgment in the amount of
$526,207.00.
After reviewing the record in light of Harold’s
arguments, we find no basis for disturbing the decisions of the
1
Senior Judge Thomas D. Emberton sitting as Special Judge by assignment of
the Chief Justice pursuant to Section 110(5)(b) of the Kentucky Constitution
and KRS 21.580.
Family Court.
We affirm the judgment and order entered in this
action.
The parties married in June 1977 and separated in
September 1999.2
later.
Harold filed his petition for divorce one month
On March 12, 2001, the court entered its decree
dissolving the marriage but reserving all other issues for later
disposition.
In separate findings entered June 7, 2001, the
court noted that the parties had reached an agreement on some of
the reserved issues, including Patricia’s claim for permanent
maintenance, her claim for attorney’s fees, and Harold’s claim
to the checking and savings accounts.
They also agreed that the
court’s equal division of their marital property would be a fair
and equitable division.
Among the issues remaining for
resolution by the Family Court were the valuation and
disposition of the couple’s closely-held corporation, Tatum
Machinery Company.
The valuation of the company was the primary issue in
dispute.
In addition to the testimony of the parties and
experts presented by each side, an expert retained before the
parties’ separation testified as to his opinion concerning the
value of the machinery company.
Bryan Livingston, an American
Express Financial Advisor, averaged the results of four
different approaches to valuation, arriving at a final value for
2
By the time of separation, the children born of the marriage were
emancipated.
-2-
the company of $401,949.00.
Steve Kerrick, a certified public
account retained by Harold, used a combination of two methods of
valuation.
His analysis produced a value of $206,492.00.
Jim
King, an account retained by Patricia, utilized a single method
to arrive at a total value of $531,500.00.
The Family Court ultimately awarded to Harold the
business, the marital residence, and other personal property.
The value of the assets distributed to Harold totaled
$577,302.00.
In an effort to equalize the division of property,
Harold was ordered to pay to Patricia the sum of $526,207.00.
This award represented Patricia’s share of the couple’s marital
residence and personal property as well as her share of the
company.
Patricia was to receive her share of the marital
estate in a lump sum from the proceeds of the parties’ Merrill
Lynch investment account.
This account was valued by the
parties at $645,210.00 as of February 1, 2001.
On appeal, Harold argues that the court erred by
assigning to Tatum Machinery Company a value of $380,440.00.
Harold contends that the trial court reached this valuation
“despite overwhelming evidence that the business would not yield
near that amount if sold, and without factoring in the
depreciated value of the business due to market conditions which
followed the trial.”
Appellant’s brief at 4.
original.)
-3-
(Emphasis
With regard to the value of the company, the trial
court carefully reasoned as follows:
Both parties have employed well-qualified
experts and, not surprisingly, each party’s
expert has arrived at a value of this
business which favors his client’s position.
What is somewhat surprising to the Court is
the degree of disparity in the expert’s
conclusions. Steve Kerrick contends that
Tatum Machinery Co. has a value of $206,000
while Jim King contends that the business
has more than twice that value, setting his
own figure at $532.000.
Steve Kerrick gave 50% weight to the socalled “adjusted book value” which values a
business basically by determining the market
value of assets less liabilities and giving
no value to the cash or earnings stream.
Mr. Kerrick adds his calculation of the
adjusted book value and his calculation of
the capitalized earnings valuation and then
divides the total by two. He then takes the
average of the two calculations and applies
a 30% discount figure to the averaged
amount. He arrives at a final evaluation
which amounts to scarcely more than the
adjusted book value. With all due respect
to Mr. Kerrick’s approach, the Court has
difficulty adopting as a real value, a
figure which effectively allows for goodwill
only $517.00. ($206,492 – Year 2000 Book
Value $205,975). This business has
generated all of the parties’ joint estate
which totals well more than $1,000,000.
While the Kentucky courts give little
guidance to trial courts in determining
value of closely held businesses, several
Kentucky courts have indicated that
corporations should be valued at their
market or going concern value which
considers both physical or tangible assets
as well as intangible assets such as
goodwill, income producing capacity, and
risk factors associated with the business.
-4-
In Clark v. Clark, Ky. App., 782 S.W.2d 56
(1990), the court viewed favorably an
approach to valuation of a medical practice
which gave significant weight to so-called
goodwill. In that case, one of the court’s
experts, Mr. Michael Mackin, with whom this
Court is familiar, puts significant weight
on the capitalization of excess earnings
method of establishing the value of
goodwill. Petitioner submits that Tatum
Machinery Co., an enterprise with rather
specialized products cannot be evaluated in
the same way as a professional, medical or
legal corporation where data is [sic]readily
available concerning comparable professional
earnings. In this case, however, Jim King
focused not on the capitalization of excess
earnings approach, but on the straight
capitalization method similar to one of the
approaches used by Bryan Livingston employed
by Petitioner before the initiation of this
action. In part because Mr. Livingston has
“no dog in this fight,” the Court has given
serious attention to and has in fact adopted
Mr. Livingston’s adjustment of 1997 ordinary
income downward by $47,000 implying that a
replacement manager for Tatum Machinery Co.
would be paid approximately $85,000 per
year. Jim King adjusted ordinary income
downward by $37,000 indicating that a
replacement manager would be paid $75,000.00
per year while Steve Kerrick adjusted income
downward by $62,000, asserting that a
replacement manager would earn $100,000 a
year. Neither of the parties’ trial experts
presented any detailed or substantial
testimony as to why they arrived at the
figures they did for replacement managers
and the Court goes with Mr. Livingston’s
prediction primarily as he had no reason for
bias.
The Court adopts Mr. Livingston’s 20% rate
of return or capitalization rate of earnings
which is 3 percentage points higher than Mr.
King’s and 5% lower than Mr. Kerrick’s. The
Court has taken into account the ordinary
-5-
income as adjusted for the years 1997
through 2000 as Mr. Kerrick did. The Court
adopted Jim King’s 20% marketability
discount to its calculation of the
capitalized returns method and arrives at a
fair market value of $380,044 which is far
closer to Mr. Livingston’s bottom line value
of $401,000 than to either of the parties’
trial experts. The Court notes that there
has been some fluctuation up and down in the
ordinary income of Tatum Machinery Co.
between 1997 and 2000 and finds that the
fluctuating earnings for all 4 years should
be considered.
The Court agrees with petitioner that the
balances of the bank accounts maintained by
Tatum Machinery Co., the PNC Money Market
account with a balance of $48,106.08 and the
National City $20,000 account remain assets
of Tatum Machinery Co.[a]nd have been
included in the experts’ business
evaluations. Hence, they are not separate
marital assets subject to division.
(Opinion of the Court, pp. 110-12)
In Clark v. Clark, Ky. App., 782 S.W.2d 56, 59 (1990),
this Court observed that “[t]here is no single best method” for
valuing a business in a divorce proceeding and that the “task of
the appellate court is to determine whether the trial court’s
approach reasonably approximated the net value of the [business]
interest.”
A trial court’s valuation in a divorce action will
not be disturbed on appeal unless it is clearly contrary to the
weight of the evidence.
Heller v. Heller, Ky. App., 672 S.W.2d
945 (1984).
-6-
The analysis of the Family Court in this matter was
based directly on testimony contained in the record.
The
resulting valuation clearly fell within the range of testimony
provided by the several experts.
We are convinced that the
approach adopted by the court has resulted in a figure that
“reasonably approximates’ the actual value of the parties’
business.
Consequently, the determination of the Family Court
on this issue cannot be disturbed.
Next, Harold contends that the Family Court erred by
failing “to account for the significant depreciation of the
Merrill Lynch account” due to market conditions prevailing after
the trial.
Appellant’s brief at 4.
As we mentioned above,
Harold was ordered to pay Patricia the sum of $526,207.00 in
order to balance the court’s distribution to Harold of the
company, family residence, and other property.
In his motion for reconsideration of June 19, 2001,
Harold indicated that the value of the Merrill Lynch investment
account had fallen from $645,210.00 in February 2001 to
$544,613.72 as of May 31, 2001.
He argued that he would face a
significant shortfall if he were required to comply with the
court’s order to liquidate the account in order to equalize the
distribution of the marital estate.
In its order denying Harold’s motion for relief, the
Family Court found that the value of the account had not
-7-
declined solely due to market conditions but in part because of
Harold’s withdrawal and personal use of the funds.
was offered to refute this finding.
No evidence
Consequently, we are not
persuaded that the Family Court erred by refusing to reconsider
its order awarding the sum of $526,207.00 to Patricia.
Nor did the court err by determining that Patricia was
entitled to a common-law judgment in that amount.
After a
twenty-two-year marriage, Patricia waived her claim to permanent
maintenance during the trial of this action.
She did so based
in part upon the value of the parties’ marital estate and her
reasonable expectation that she would be awarded sufficient
funds to enable her to support herself without an award of
maintenance.
However, before entry of the court’s decision in this
case and the distribution of the marital estate, Harold was held
in contempt for failing to abide by pendente lite orders
requiring him to share marital funds with Patricia.
Because she
had not received these funds in a timely fashion, Patricia was
forced to borrow money in order to purchase medication that she
needed as part of her ongoing treatment for cancer.
By August
2001, Patricia had not yet received from Harold any part of the
marital estate – in disregard of the court’s orders pendente
lite.
The Family Court then ordered that she was entitled to a
common-law judgment against Harold in an amount reflecting her
-8-
share of the couple’s marital property.
Our review of the
course of these proceedings convinces us that the court’s
decision was more than justified.
We find no abuse of
discretion.
The judgment of the Jefferson Family Court is
affirmed.
ALL CONCUR.
BRIEF FOR APPELLANT:
BRIEF FOR APPELLEE:
J. Key Schoen
Stephen J. Tillman
Louisville, Kentucky
Joseph V. Mobley
Oliver B. Rutherford
Louisville, Kentucky
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