Champion v. Champion

• Decision Date: 19 March 2002
• Docket Number: No. 98-P-808.,98-P-808.
• Citation: 54 Mass. App. Ct. 215,764 NE 2d 898
• Parties: JOYCE CHAMPION v. GARY CHAMPION.
• Court: Appeals Court of Massachusetts

54 Mass. App. Ct. 215

764 NE 2d 898

JOYCE CHAMPION v. GARY CHAMPION.

No. 98-P-808.

Court of Appeals of Massachusetts, Essex.

January 16, 2001.

March 19, 2002.

Present: PERRETTA, KAPLAN, & GELINAS, JJ.

Stephen C. Maloney for Gary Champion.

David W. Rifkin for Joyce Champion.

PERRETTA, J.

This matter comes to us on cross appeals from an amended judgment of divorce nisi and an amended judgment on a complaint for modification. Both parties assert that the trial judge erred in his valuation of the sole proprietorship of the former husband (Gary), and in determining the amount of support awarded the former wife (Joyce). We affirm the judgments.

1. The amended judgment of divorce. We recite the facts found by the judge that are relevant to the division of the parties' assets and the order for alimony and child support. The evidence will be related where necessary to the discussion of the various issues.

Married in 1978, the parties separated in 1995. They have shared custody of their only child, a son born in 1983, since the time of their separation. At the time of their divorce, Gary was forty-eight years of age, in good health, and operated his own telecommunications business, Champion Resources. Joyce is two years younger than Gary. She had worked as a bookkeeper for Champion Resources but was unemployed at the time of the divorce. Notwithstanding her health problems,¹ the judge found that she was able to work twenty to twenty-five hours a week.

Finding that Joyce had less opportunity than Gary to acquire future capital assets and income, the judge awarded her fiftythree percent of the marital estate. The assets were valued and assigned as follows. Gary was awarded the marital home and assumed its mortgage ($81,514 equity); received sole ownership of Champion Resources ($54,000), his boat ($10,000), and his 1991 car ($8,500); and gave a secured four year, four percent note payable to Joyce ($26,523.68) for total net assets of $127,490.32. Joyce was assigned the parties' condominium and assumed its mortgage ($39,732 equity); received sole ownership of their individual retirement accounts ($76,010), and her 1985 car ($1,500); and held the aforementioned note from Gary for total net assets of $143,765.68. The judge also ordered that Gary pay Joyce $656 a week for her support ($328) and that of their child ($328).

2. Value of the sole proprietorship. There was evidence to show that Gary, as owner and operator of Champion Resources, sold and installed new and used telecommunication equipment. His expert witness, a business appraiser and accountant, opined that Champion Resources had a value of $54,000. He arrived at that figure by subtracting the business's liabilities from its inventory and receivables and making certain minor adjustments.² The expert stated that he did not value the goodwill of Champion Resources because, in his opinion, any goodwill was personal to Gary and could not be transferred.³ The judge accepted the testimony of Gary's expert witness and put a value of $54,000 on Champion Resources.

Gary does not dispute the obvious fact that Champion Resources was a sole proprietorship. See, e.g., Ladd v. Scudder Kemper Invs., Inc., 433 Mass. 240, 243 (2001). Instead, he claims that because Champion Resources was worth more to him as a stream of income rather than any amount for which he might have sold the business, he would not willingly sell Champion Resources no matter the sale price it might fetch.⁴ It is on this basis that he insists that Champion Resources should have been valued as worthless for purposes of valuing and distributing the marital assets.

Whether a business takes the form of a corporation, partnership, or sole proprietorship does not affect the valuation method that a court may use even though some methods may better lend themselves to particular types of business associations. See 2 McCahey, Valuation and Distribution of Marital Property § 22.08, at 22-102, 22-103 (2001). The willing buyer/willing seller test is used to determine the fair market value of a sole proprietorship for Federal estate and gift tax purposes, see id. at § 24.072, and the guidelines established for such purposes are relevant in divorce litigation.⁵ See 2 Budd & Zupcofska, Massachusetts Divorce Law Practice Manual § 14.4, at 14-23 (MCLE 2000). In the absence of a determinable market value, experts commonly value a closely held business by the assignment of value to the assets of the business, as was done here (inventory and receivables less liabilities), and by the capitalization of earnings. See Kindregan & Inker, Family Law & Practice § 45.8, at 275 (2d ed. 1996).

In assigning a value to Champion Resources, the judge found Gary's expert credible and accepted his opinion which was based upon the amount of assets left after subtracting liabilities. His finding is not clearly erroneous, and we are bound by it. See Sarrouf v. New England Patriots Football Club, Inc., 397 Mass. 542, 550 (1986) ("valuation is a question of fact, and we will not disturb a judge's determination unless it is clearly erroneous"); Fechtor v. Fechtor, 26 Mass. App. Ct. 859, 863 (1989) ("unless clearly erroneous, the trial judge's determination of value will stand").

3. Income from the business. On her cross appeal, Joyce claims that the judge erroneously used the cash basis method of accounting to determine that Gary's annual income was about $102,000.⁶ She argues that the accrual method should have been used and Gary's yearly income found to be $131,000.

Certain methods of accounting are more suitable for certain types of businesses. So long as Internal Revenue Service requirements are met, a business generally may use the method most appropriate for its needs. See Valuation and Distribution of Marital Property § 22.041a, at 22-35. "The cash basis is the most commonly used accounting method, especially by individuals, sole proprietors, partnerships and certain service businesses." Id. at § 22.041i, at 22-36.

There was evidence to show that Gary used the accrual method in maintaining Champion Resources' books but reported his income on a cash basis. However, his expert witness, found credible by the judge, testified that this practice was neither wrong nor illegal. Although Joyce's witness, an accountant who failed to qualify as an expert witness, related that Internal Revenue Service regulations may have required Gary to use the more complicated and time-consuming accrual method to compute his taxes,⁷ he nonetheless conceded that he would have advised Gary to report his income on a cash basis.

Again, we accept the judge's determination. See Sarrouf v. New England Patriots Football Club, 397 Mass. at 550; Fechtor v. Fechtor, 26 Mass. App. Ct. at 863.

4. "Double dipping." Commentators use the phrase "double dipping" to describe the seeming injustice that occurs when property is awarded to one spouse in an equitable distribution of marital assets and is then also considered as a source of income for purposes of imposing support obligations. See "Double Dipping," 7 Equit. Dist. J. 73, 73-77 (National Legal Research Group, Inc., July 1990); and authorities therein cited. See also Valuation and Distribution of Marital Property § 23.052d, at 23-96; and authorities therein cited.⁸

Relying upon the fact that the value of Champion Resources was based in significant measure on the accounts receivable of the business, see note 2, supra, which will cease to exist upon collection and will be converted into a stream of income, Gary claims that Joyce erroneously received "an improper double benefit." Dalessio v. Dalessio, 409 Mass. 821, 828 (1991). According to Gary, the judge's decision constitutes a "redistribution through alimony and child support orders of assets already assigned." He claims that Joyce will receive an improper double benefit unless we conclude that the value of Champion Resources was nil, eliminate the promissory note awarded Joyce, and redistribute the assets of the marital estate.

Although the circumstances presented in Dalessio are quite different from those in the instant case, we think that decision instructive. In Dalessio, the husband had been awarded a multimillion dollar settlement in a personal injury lawsuit that resulted in a lump-sum payment as well as a monthly annuity payment throughout his life. The wife also received a lump-sum payment and monthly annuity payments on her loss of consortium claim. The husband and wife then pooled their lumpsum payments and invested them in a joint investment account.

Upon the parties' divorce, a Probate Court judge awarded the wife her annuity, a percentage of the present value of the husband's annuity, and a percentage of the joint investment account funded by the parties' lump-sum settlement payments. On appeal, the husband claimed that the wife had received the "benefit of a double recovery from a single resource." Dalessio v. Dalessio, 409 Mass. at 827. He argued that because his annuity was purchased with funds from the settlement received in his civil suit, he had "effectively transformed a capital asset into a source of income," which could serve as a basis for a support order but could not also be "part of his divisible estate." Ibid. In rejecting the husband's argument, the court stated, at 828:

"So long as it is possible (as it is in this case) to identify separate portions of a given asset of a divorcing spouse as the separate bases of the property assignment and any alimony or support obligations (thus avoiding redistribution by an alimony or support order of specific assets that already have been equitably assigned), there is nothing improper about including a particular asset within a spouse's assignable estate, assigning part of it, and then counting its remainder for alimony or child support purposes." (Emphasis added.)

Gary's reliance upon Dalessio is misplaced. In the first instance, we see nothing in Dalessio that can be construed as...