Bosserman v. Bosserman, 0500-88-3

• Decision Date: 05 September 1989
• Docket Number: No. 0500-88-3,0500-88-3
• Citation: 9 Va.App. 1,384 S.E.2d 104
• Parties: Basil L. BOSSERMAN v. Lorraine S. BOSSERMAN. Record
• Court: Virginia Court of Appeals

Page 104

384 S.E.2d 104

9 Va.App. 1

Basil L. BOSSERMAN v. Lorraine S. BOSSERMAN.

Record No. 0500-88-3.

Court of Appeals of Virginia.

Sept. 5, 1989.

Victor V. Ludwig (Robert L. Rhea, Ludwig & Ludwig, Rhea & Miller, on brief), for appellant.

Roger B. Willetts (Edmonds, Willetts, Yount & Hicks, on brief), for appellee.

Panel: BENTON, COLEMAN and DUFF, JJ.

COLEMAN, Judge.

The issue in this case is whether the trial court, when valuing the marital property for purposes of making a monetary award, correctly valued the stock of a closely held corporation whose shares were subject to a stock transfer restriction. Basil Bosserman contends the trial court erred in valuing his stock in Bosserman, Inc. because: (1) the court did not use the price set by the restrictive transfer provision in the corporate by-laws; (2) the court arbitrarily disregarded the evidence of corporate debt in valuing the stock; and (3) the evidence of value, independent of the method set in the by-laws, was insufficient to support the court's evaluation. We find that the trial court did not err and affirm its valuation of the stock.

Lorraine and Basil Bosserman were married August 7, 1954, and separated on May 6, 1984. During the marriage Basil Bosserman and his three brothers incorporated Bosserman, Inc. Each brother received twenty-five percent of the corporation's stock. The corporation acquired as its sole asset a farm of approximately 126 acres, improved with a two story dwelling and several out buildings. The by-laws of Bosserman, Inc. contain a provision restricting transfer of the stock by the shareholders. Article 5, § 2 of the by-laws requires that a shareholder desiring to sell his stock first offer it for sale to the corporation at its "true book value" before selling it to a third party.

The by-laws further provided that if the corporation and the shareholder did not agree "that the aforesaid book value is a true reflection of the value of such stock," the corporation and the shareholder would each appoint an appraiser and the two appraisers would select a third appraiser who, by majority vote, would determine "true book value" of the stock. The determination made by the appraisers is binding upon the corporation and the shareholder for purposes of the buy out provision. During the pendency of these proceedings, Basil Bosserman sold his stock to Bosserman, Inc., purportedly pursuant to the buy-out provision and based upon a determination of "true book value" of $7,008.

In the divorce proceeding, the parties submitted on depositions which spouse had grounds for divorce. They also stipulated to most relevant facts necessary for the trial court to make the equitable distribution determination: the value of all marital property, except the husband's interest in Bosserman, Inc. and the net fair market value of the farm owned by Bosserman, Inc. The stipulation provided that the net fair market value of the farm owned by the corporation was $147,600 but that the book value of all shares of the Bosserman, Inc. stock was $28,032. The trial court had to decide the effect of the restrictive buy out provisions upon the value of the stock. If the restrictive provisions controlled the stock's value, the trial court also had to determine "true book value." Mr. Bosserman also contends the trial court, irrespective of the valuation formula employed, failed to consider a corporate debt of approximately $16,000 and the fact that he was a minority stockholder in a close corporation, both of which, he argues, diminish his stock's value. The debts were allegedly for unpaid loans that each Bosserman stockholder had made to the corporation. By decree dated March 18, 1988, the trial court granted Mr. Bosserman a divorce based on his wife's desertion and granted Mrs. Bosserman a monetary award equivalent to forty-nine percent of the marital property valued at $93,400, of which $36,900 was the value of the stock. Mr. Bosserman appeals the trial court's valuation of his stock in Bosserman, Inc. as the basis for the monetary award.

Whether the trial court erred in valuing the Bosserman, Inc. stock depends upon the effect which must be given the restrictive transfer provision in the by-laws and the sufficiency of the evidence to value the stock. At the evidentiary hearing both parties had certified accountants testify to the value of the stock. Since the restrictive by-laws provided for a first option buy out based on "true book value" that concept became significant for the trial court to determine the stock's value. Both accountants agreed that the term "true book value" is not an accepted accounting principle. Both agreed that the term "book value" of stock is determined solely by reference to the value of stock as reflected on the books of the corporation. Mrs. Bosserman's accountant suggested that since the by-laws did not utilize an acceptable accounting principle the proper method of valuation would be fair market value. Mr. Bosserman's accountant testified that if the by-laws meant "book value" of the stock, its book value was $7,008.

Interpreting Article 5 § 2 of the corporation's by-laws, the trial court ruled "that it is my opinion that the original stockholders that formed Bosserman, Inc., intended that each stockholder would be able to sell his stock back to Bosserman, Inc. at its fair market value." The trial court based that ruling upon the valuation procedure to select three appraisers who would determine that "true book value" which "is a true reflection of the value of such stock." Thus, the trial court construed "true book value" as used in the by-laws to mean fair market value. Since Mr. Bosserman did not offer any evidence of fair market value of the stock, the trial court accepted the stipulated value ($147,600) of the corporation's sole asset, the farm, and $36,900 as the value of his one-fourth interest.

On the issue of discounting corporate debt to arrive at fair market value, Mr. Bosserman's accountant, who kept the corporate books, testified that the corporation did owe its stockholders approximately $16,000, even though he found no promissory notes or other written evidence of indebtedness, and even though the corporation had paid no interest to stockholders or made a demand from them for payment. The accountant acknowledged that the IRS would not treat the debt as a loan but as a capital contribution by the stockholders. The trial court found no corporate debt. The trial court also ruled that Basil Bosserman failed to produce credible evidence establishing how the value of his stock should be discounted because of his minority interest. Thus, the trial court did not reduce the value on account of corporate debt or minority stock interest and further found that Basil Bosserman's recent sale of his stock to the corporation for $7,008 was irrelevant for purposes of Code § 20-107.3. The trial court valued the stock at $36,900 for purposes of determining the monetary award.

Code § 20-107.3 requires a trial court to value the parties' separate and marital property before making a monetary award. The trial court's valuation cannot be based on "mere guesswork." Taylor v. Taylor, 5 Va.App. 436, 443, 364 S.E.2d 244, 248 (1988). The burden is on the parties to provide the trial court sufficient evidence from which it can value their property. Id.; see also Bowers v. Bowers, 4 Va.App. 610, 617, 359 S.E.2d 546, 550 (1987). Once the trial court has resolved conflicting evidence as to value and determined value, the decision whether to make a monetary award and the amount of the award is governed by the rights and equities of the parties and the factors designated in Code § 20-107.3(E). Artis v. Artis, 4 Va.App. 132, 136, 354 S.E.2d 812, 814 (1987). The award will not be disturbed on appeal unless plainly wrong or without evidence to support it. Frye v. Spotte, 4 Va.App. 530, 537, 359 S.E.2d 315, 319-20 (1987); see also Aster v. Gross, 7 Va.App. 1, 9, 371 S.E.2d 833, 838 (1988). Brown v. Brown, 5 Va.App. 238, 244-45, 361 S.E.2d 364, 368 (1987).

The purpose of Code § 20-107.3 is to fairly divide the value of the marital assets acquired by the parties during marriage with due regard for both their monetary and nonmonetary contributions to the acquisition and maintenance of the property and to the marriage. Robinette v. Robinette, 4 Va.App. 123, 130, 354 S.E.2d 808, 811 (1987). Trial courts valuing marital property for the purpose of making a monetary award must determine from the evidence that value which represents the property's intrinsic worth to the parties upon dissolution of the marriage.

We first consider whether the trial court erred by refusing to be bound by the method of valuation set by the by-laws and by Basil Bosserman's sale of the stock according to those terms. Although similar issues have been addressed by courts in many equitable distribution jurisdictions, see generally Effect of Restrictive Agreement on Valuation, 6 Equitable Distribution Journal 49 (1989), Virginia courts have not previously considered the issue. In a majority of jurisdictions, the price set by a buy-out provision does not control the determination of value when the other spouse did not consent or was not otherwise bound by its terms. This is so even though the agreement was executed after the marriage. The reason for rejecting the value set by buy-out provisions is that they do not necessarily represent the intrinsic worth of the stock to the parties. Some courts, however, consider buy-out provisions a factor to be considered. Id. at 50-51; see e.g. Suther v. Suther, 28 Wash.App. 838, 627 P.2d 110 (1981). Other jurisdictions hold that the terms of the restriction presumptively control value, see e.g. Stern v. Stern, 66 N.J. 340, 331 A.2d 257 (1975), while a small minority regard the value specified in the agreement as controlling. See, e.g. Hertz v. Hertz, 99 N.M. 320, 657 P.2d 1169 (1983).

A decision to reject the valuation method...