Kowalesky v. Kowalesky
| Decision Date | 04 April 1986 |
| Docket Number | Docket No. 79322 |
| Citation | 384 N.W.2d 112,148 Mich.App. 151 |
| Parties | Richard W. KOWALESKY, Plaintiff-Appellee, v. Christine R. KOWALESKY, Defendant-Appellant. |
| Court | Court of Appeal of Michigan — District of US |
Prather & Harrington by James J. Harrington, Detroit, for defendant-appellant on appeal.
Before SHEPHERD, P.J., and R.B. BURNS and TAHVONEN *, JJ.
Defendant appeals from a 1984 judgment of divorce. She challenges the property valuation, child support award, and child custody provisions of the judgment. We reverse in part.
The parties were married in 1971 while plaintiff was a senior in dental school and defendant was in her last year of a dental hygiene program. Both parties graduated in April, 1972, and plaintiff soon thereafter set up a dental practice in Saginaw. Except for pregnancy leave, defendant worked part-time in plaintiff's office for most of the marriage.
Plaintiff testified that he and defendant had numerous disagreements during the course of their marriage, primarily over the management of the dental practice, day-to-day activities, and finances. Prior to plaintiff's filing of the divorce complaint on November 27, 1981, defendant spent two or three weeks in Canada taking care of her parents' dog and, soon after her return, she left for Florida to visit her sister. During her absence, plaintiff discovered that defendant had withdrawn a large sum of money from their savings account and that property deeds, jewelry, and gold coins and bullion were missing from their safety deposit boxes. He also discovered that a bag of silver coins was missing from the marital home.
Defendant admits to taking some of the parties' gold holdings, but contends that she did so only with plaintiff's permission. She also admitted to selling the jewelry. However she denies taking the bag of silver.
The trial court valued the marital estate at $425,332.97, awarding half to each party in accordance with their stipulation. Defendant raises several claims of error, which we will address seriatim.
Defendant contends that the trial court's finding on the valuation of plaintiff's dental practice was erroneous as it was based upon a "distress sale" or "going out of business" basis. She invites this Court to adopt the valuation method contained in Revenue Ruling 59-60 and apply that method to property divisions in divorce actions. Rev.Rul. 59-60, IRB, CB 1959-1, 237. We decline that invitation.
Revenue Ruling 59-60 was promulgated to address the problem of valuing the stock of closely held corporations for estate and gift tax purposes. Defendant urges this Court to be the first to apply the ruling to the valuation of professional corporations in divorce actions.
Michigan courts have been silent on the issue of the proper method of valuing professional practices. However, in Handricks v. Handricks, 353 Mich. 527, 91 N.W.2d 912 (1958), the Supreme Court affirmed a trial court's valuation of a tavern business based upon the expert testimony of a real estate broker.
The division of marital assets is within the discretion of the trial court and we will not reverse unless we are convinced that we would have reached another result had we occupied the position of the trial court. Parrish v. Parrish, 138 Mich.App. 546, 361 N.W.2d 366 (1984). However, the valuation of an asset by the trial court is a finding of fact that we will reverse only if it is found to be clearly erroneous. MCR 2.613(C). See also, Cantor v. Cantor, 87 Mich.App. 485, 495, 274 N.W.2d 825 (1978) (). Since the parties stipulated that the assets were to be divided evenly, our review is limited to determining if the trial court's valuation of the practice was clearly erroneous. Further, we will conclude that a ruling is clearly erroneous only if, after reviewing the entire record, we are left with the definite and firm conviction that a mistake has been committed. Tuttle v. Dep't. of State Highways, 397 Mich. 44, 243 N.W.2d 244 (1976).
We believe that neither Revenue Ruling 59-60 nor any other single method should uniformly be applied in valuing a professional practice. Rather, this Court will review the method applied by the trial court, and its application of that method, to determine if the trial court's valuation was clearly erroneous. 1
In the case at bar, the trial court determined the value of plaintiff's practice, including equipment and good will but excluding accounts receivable, to be $110,000 plus an additional $30,487.42 representing the equity in the dental office building. 2 We do not believe this valuation to be unreasonable. Plaintiff's expert, Roberto Lopez, valued the practice at $109,019.29, including equipment, supplies, furniture, good will, and accounts receivable. Lopez is actively involved in the sale of dental practices and the valuation of those practices. Defendant's expert, a certified public accountant who has a number of dentists as clients, did not have similar valuation experience.
Although the trial court's valuation of the practice seems to favor plaintiff, it was within the range of values testified to by the various experts. Given the credentials of plaintiff's expert, we cannot conclude that the trial court's finding in valuing the dental practice, except as discussed below, was clearly erroneous.
We do believe, however, that there are three areas in which the trial court erred in valuing the dental practice. First, the trial court failed to value the accounts receivable, stating that they were used to pay the debts and expenses of the corporation as well as plaintiff's salary. However, it is not clear whether the trial judge was merely using the receivables to offset existing debts of the corporation, including accrued salary, or whether the trial court was also considering future expenses and salary.
Generally speaking, the value of a business is its assets, less its liabilities. Since plaintiff was entitled to receive the accounts receivable, they represented an asset of the corporation. Similarly, any debts, including unpaid salary expenses, reduced the value of the corporation. In valuing the dental practice, the trial court should have determined the value of all assets, tangible and intangible, including good will and accounts receivable, and subtracted from that the amount of the outstanding liabilities of the corporation as of the date of valuation.
The second area in which the trial court erred was in considering the reduction Mr. Lopez opined of 40% of the value of the good will of the practice on the basis of a distress sale. There is nothing in the record to support the assumption that the plaintiff would discontinue his practice or that the staff would not stay on. Since it appears that plaintiff would continue the dental practice, the valuation of the practice should be the value of the practice to plaintiff as a going concern.
The third area in which the trial court erred was in considering the fact that plaintiff paid temporary alimony and child support during the pendency of the action. This fact is not relevant to the value of the dental practice. Similarly, that some of the amounts collected from the accounts receivable went to pay the temporary support obligations is also irrelevant. Although support obligations may be relevant in dividing assets, a subject upon which we offer no opinion, the value of an asset is not directly affected by the fact that a party is under a support obligation. The parties stipulated that the assets were to be divided evenly. Thus, the trial court was limited to valuing the dental practice. The fact that plaintiff had to pay temporary support was not relevant to any matter before the trial court in valuing the marital assets.
Since the testimony of the witnesses differed widely as to the value of the accounts receivable 3, we decline to make a valuation ourselves. Rather, we remand the case to the trial court for redetermination of the value of the plaintiff's professional corporation and a modification of the property division accordingly.
During the course of the marriage, a Clifford trust 4 was established for the benefit of the children. According to plaintiff's testimony at trial, the children also had the reversionary interest in the trust. Defendant was the trustee of the trust and, following the filing of the divorce action, improperly removed $21,000 from the trust. The trial court ordered defendant to repay the trust from her share of the property settlement. 5 Defendant argues that the circuit court had no authority over the trust. We agree.
Jurisdiction over the internal affairs of trusts is vested by statute in the probate court. M.C.L. Sec. 700.805; M.S.A. Sec. 27.5805 provides in part as follows:
Exclusive jurisdiction over trusts by the probate court...
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