Chandler v. Chandler

• Decision Date: 07 August 2001
• Docket Number: No. 26416.,26416.
• Citation: 136 Idaho 246,32 P.3d 140
• Parties: Bill Rex CHANDLER, Plaintiff-Respondent, v. Susan C. CHANDLER, Defendant-Appellant.
• Court: Idaho Supreme Court

32 P.3d 140

136 Idaho 246

Bill Rex CHANDLER, Plaintiff-Respondent, v. Susan C. CHANDLER, Defendant-Appellant.

No. 26416.

Supreme Court of Idaho, Twin Falls, March 2001 Term.

August 7, 2001.

Rehearing Denied September 28, 2001.

David H. Leroy, Boise, and Roger E. Crist, Ketchum, for appellant. Roger E. Crist argued.

Hogue & Dunlap, L.L.P., Hailey, for respondent. Tracy Dunlap argued.

SCHROEDER, Justice.

This is an appeal from a district court order that affirmed the findings of a magistrate court regarding the valuation of the parties' community business and the calculation of the husband's income for the purpose of determining support payments.

I. FACTS AND PROCEDURAL BACKGROUND

Susan and Rex Chandler were married on September 22, 1981. They had one child during the marriage, Tyler Rex Chandler, born February 9, 1988.

The Chandlers have been involved in the restaurant industry, on varying levels, for several years. Susan has held lower level positions, while Rex has acted as director and overall manager in several fine-dining establishments in Hawaii and California. The Chandlers acquired ownership interest in several of these restaurants. Although the restaurants experienced periods of substantial expansion and success, the parties suffered a business and personal bankruptcy in 1991.

The Chandlers moved to Honolulu, Hawaii, in 1992, where Rex was employed as general manager of a restaurant and nightclub, earning $100,000 per year. In 1993, Rex accepted a position as director of operations of a resort in South Lake Tahoe, California, where he was paid a salary of $60,000 per year, plus housing and benefits.

In June of 1994, Rex was contacted by a friend living in Ketchum, Idaho, and was told of the opportunity to rent a small restaurant space in Ketchum that had been vacated by another restaurant. Rex investigated the opportunity and concluded he could create a fine-dining restaurant there. Because of their financial difficulties, the Chandlers could not qualify for a conventional loan. Rex's mother, Radie Chandler, refinanced her home and loaned the parties approximately $105,000 to open the restaurant.

The parties moved to Ketchum in August of 1994. Chandler's Restaurant opened in November of 1994 as a sole proprietorship. The business was incorporated in February of 1995, as Chandler's Restaurant, Inc. Rex manages every aspect of the restaurant and works ten or more hours a day and often works on his days off, commonly up to sixty hours per week.

Rex filed a complaint for divorce in July of 1998. The parties stipulated to joint custody of Tyler and to the allocation of personal property but went to trial on other issues.

The trial court awarded the community property business (the restaurant) to Rex and ordered Susan to transfer her fifty-percent interest in the business to Rex in exchange for one-half of the value of the business, determined by the trial court to be $21,000. The trial court ordered Susan to use those funds to pay her attorney fees. In addition, the trial court fixed child support pursuant to the child support guidelines based upon the trial court's determination that Rex's total income is $65,000 per year. The trial court awarded Susan eight months of alimony of $1,800 per month.

Susan appealed to the district court, alleging that the trial court undervalued the community property business and that the trial court erred in calculating Rex's income for support purposes. The district court affirmed the magistrate court's findings. Susan appealed to this Court.

II. STANDARD OF REVIEW

"The disposition of community property is left to the discretion of the trial court, and unless there is evidence in the record to show an abuse of that discretion, the award of the trial court will not be disturbed." Maslen v. Maslen, 121 Idaho 85, 88, 822 P.2d 982, 985, citing Koontz v. Koontz, 101 Idaho 51, 52, 607 P.2d 1325, 1326 (1980)

. In reviewing an exercise of discretion, this Court conducts a multi-tiered inquiry: "(1) whether the lower court rightly perceived the issue as one of discretion; (2) whether the court acted within the outer boundaries of such discretion and consistently with any legal standards applicable to specific choices; and (3) whether the court reached its decision by an exercise of reason." State v. Hedger, 115 Idaho 598, 600, 768 P.2d 1331, 1333 (1989),

citing Associates Northwest, Inc. v. Beets, 112 Idaho 603, 605, 733 P.2d 824, 826 (Ct.App.1987); Sun Valley Shopping Center, Inc. v. Idaho Power Co., 119 Idaho 87, 94, 803 P.2d 993, 1000 (1991).

Encompassed in the disposition of community property is the determination of the value of that property. The Court has held that in "divorce proceedings the determination of the value of community property is within the discretion of the trial court and will not be disturbed on appeal if it is supported by substantial competent evidence." Maslen, 121 Idaho at 90, 822 P.2d at 987, citing Shumway v. Shumway, 106 Idaho 415, 679 P.2d 1133 (1984)

; Martsch v. Martsch, 103 Idaho 142, 645 P.2d 882 (1982). The trial court, "not this Court on appeal, resolves the conflicting evidence and determines the weight, credibility and inferences to be drawn" from the evidence. McAffee v. McAffee, 132 Idaho 281, 287, 971 P.2d 734, 740 (Ct.App.1999),

citing Weilmunster v. Weilmunster, 124 Idaho 227, 238, 858 P.2d 766, 777 (Ct.App.1993).

The Court reviews the magistrate's award of child support under an abuse of discretion standard. Henderson v. Smith, 128 Idaho 444, 451, 915 P.2d 6, 13 (1996), citing Noble v. Fisher, 126 Idaho 885, 888, 894 P.2d 118, 121 (1995)

. The appellant bears the burden of establishing that the magistrate's calculations constituted an abuse of discretion. Id.

In regard to spousal maintenance, the Court reviews the trial court's findings "that are the basis for the court's decision as to the duration and the amount of spousal maintenance to determine whether there exists substantial and competent evidence in support of these findings." Wilson v. Wilson, 131 Idaho 533, 535, 960 P.2d 1262, 1264 (1998), citing Mulch v. Mulch, 125 Idaho 93, 98, 867 P.2d 967, 972 (1994)

; Tisdale v. Tisdale, 127 Idaho, 331, 333, 900 P.2d 807, 809 (Ct.App.1995).

III.

THE TRIAL COURT INCORRECTLY CALCULATED THE VALUE OF THE COMMUNITY PROPERTY BUSINESS.

The core of the arguments surrounding this issue revolves around the "goodwill" value, if any, of the community business. It is important to note that the trial court found that Rex's expertise in the restaurant business is not community property, thus cannot be valued as goodwill. The goodwill value at issue in this case is the goodwill of the community business itself, Chandler's Restaurant, Inc. Despite the business' negative asset to debt ratio, the trial court stated "the Court cannot conclude that the corporation has a negative value, or that it should be valued at less than zero (0) for purposes of property division." The trial court found that the community business had some "value" distinguishable from Rex's personal goodwill. That value can only be categorized as the goodwill of the community business itself.

Two values must be considered when determining the overall value of a business: intangible assets and tangible assets. The value of the business is determined when the two factors are combined. "Goodwill" (an intangible asset) is an appropriate factor in determining the value of a business. Olsen v. Olsen, 125 Idaho 603, 606, 873 P.2d 857, 860 (1994). Goodwill represents "the advantage or benefit, which is acquired by an establishment, beyond the mere value of the capital, stock, funds, or property employed therein, in consequence of the general public patronage and encouragement which it receives from constant or habitual customers, on account of its local position, or common celebrity, or reputation for skill or affluence ...." Newark Morning Ledger Co. v. United States, 507 U.S. 546, 555, 113 S.Ct. 1670, 1675, 123 L.Ed.2d 288, 299 (1993); see also Harshbarger v. Eby, 28 Idaho 753, 761, 156 P. 619, 621 (1916); Loveland v. Loveland, 91 Idaho 400, 402, 422 P.2d 67, 69 (1967). Goodwill is not the equivalent of future earnings. See In re marriage of Bookout, 833 P.2d 800, 804 (Colo.App.1991), citing In re Marriage of Lukens, 16 Wash.App. 481, 558 P.2d 279 (1976)

; Dugan v. Dugan, 92 N.J. 423, 457 A.2d 1 (1983) (other citation omitted); see also In re Marriage of Hall, 103 Wash.2d 236, 692 P.2d 175 (1984) ("Goodwill is a property or asset which supplements the earning capacity of another asset, a business, or a profession, and, therefore, it is not the earning capacity itself."). Rather, "relative to marital dissolution, goodwill represents the ability of a business to earn money after the divorce based on efforts made during the marriage ... to the extent future profits are likely due to circumstances that exist at the time of the dissolution, they should be reflected in the value of the business." Richard E. Poley, Valuing Business Goodwill in a Divorce, 26 APR COLO. LAW. 53 (1997).

Determining a value to assign to the goodwill of a business is the most complex aspect of a court's determining a business's overall value. There are many accepted methods that experts use to estimate a business' goodwill value. The goal of utilizing these various methods is to enable the trial court to accurately approximate a business's true "value," that is, what a willing buyer would pay a willing seller for the business, in this case, what a willing buyer would pay for Chandler's Restaurant, Inc., based on its community reputation, established patronage, and other factors based on efforts made during the marriage that exist at the time of dissolution.

How the trial court assesses and weighs each method and variable with it, in each particular case, is within that court's discretion. This Court and the Court of Appeals have recognized the validity of several of these valuation "methods." Se...