Marriage of Stephens, In re, s. 21098

Decision Date31 October 1997
Docket NumberNos. 21098,21109,s. 21098
Citation954 S.W.2d 672
PartiesIn re the MARRIAGE OF Helen Marie STEPHENS and Michael Joe Stephens. Helen Marie STEPHENS, Petitioner/Appellant/Cross-Respondent, v. Michael Joe STEPHENS, Respondent/Respondent/Cross-Appellant.
CourtMissouri Court of Appeals

James R. Sharp, Wear & Sharp, Springfield, for Appellant.

C. Ronald Baird, Mark J. Millsap, Baird, Lightner & Millsap, P.C., Springfield, for Respondent.

CROW, Judge.

By a decree filed March 21, 1996, the trial court dissolved the marriage of Helen Marie Stephens ("Wife") and Michael Joe Stephens ("Husband"). Both parties appeal.

Wife maintains the trial court erred in: (1) assigning too low a value to a pharmacy owned by the parties, (2) awarding Wife less than half the "net marital estate," (3) awarding Wife insufficient maintenance, and (4) awarding Wife insufficient child support for the parties' two youngest children. Husband maintains the trial court erred in: (1) awarding Wife maintenance, and (2) failing to order a total abatement of child support for each of the two youngest children if each attends college and does not reside with Wife.

The parties married July 2, 1967. The union produced three children: Mary Helen, born May 20, 1974; Carmen Marie, born July 1, 1978; Nancy Michele, born February 26, 1980.

The parties' pharmacy--the subject of Wife's first point--is Stephens Pharmacy in Bolivar. The parties started it January 1, 1975. Husband is a pharmacist, having received a bachelor of science degree in pharmacy in 1971. Wife received a bachelor of science degree in education in 1968. Both worked at the pharmacy. Each was 49 years of age at time of trial.

The pharmacy occupies part of a building owned by the parties. The trial court valued the building (together with the land on which it sits) at $312,500. For convenience, we henceforth refer to that asset as "the business real estate."

The decree treats the business real estate and the pharmacy as separate assets.

Wife's evidence regarding the value of the pharmacy as a separate asset came from William J. Meyer, a certified public accountant. Meyer avowed the "capitalization of earnings approach" was the method a prospective buyer would use in valuing the pharmacy. Employing that method, Meyer concluded the fair market value of the pharmacy was $774,690.

Husband presented testimony by Elmer Selim, a certified public accountant, regarding the pharmacy's value. Selim used two methods, one of which was "capitalization of earnings." According to Selim, that method produced a fair market value of $231,579.

The trial court valued the pharmacy at $267,684 and awarded it to Husband.

Wife's first point:

"The trial court erred in valuing the family business, Stephen's [sic] Pharmacy, at $267,684.00, instead of at $774,690.00 as testified to by Wife's expert, in that said valuation is against the weight of the evidence and is not supported by substantial evidence because the trial court found that said business was a retail establishment and not a professional practice and the only creditable evidence presented to the court concerning the value of the business as a retail establishment was from Wife's expert, William Meyer, ... who testified that its fair market value as a retail establishment was $774,690.00, considering that the business had been earning a net profit in excess of $200,000.00 per year for the two years before trial."

The goal of Wife's first point is a mandate from us remanding the case to the trial court with a directive to assign the pharmacy a value of $774,690 and to award Wife a money judgment against Husband to compensate her for her interest in the pharmacy at that value.

There was an issue at trial about the extent (if any) to which goodwill 1 could be considered in determining the value of the pharmacy. Inherent in that issue was the question of whether the pharmacy should be treated as a professional practice or a retail business. If the pharmacy is a professional practice, the existence (if any) of goodwill, and its value, can be shown only by fulfilling the evidentiary requirements in Hanson v. Hanson, 738 S.W.2d 429, 435-36 (Mo. banc 1987). Husband insists the pharmacy should be deemed a professional practice for purpose of valuation.

Wife's expert, Meyer, testified that pharmacies differ from the practices of physicians, lawyers, and accountants in that the latter practitioners "dispense cognitive services," whereas pharmacists sell medicine and other "tangible goods" which a consumer can take home and use. Meyer's testimony did not meet the standard of Hanson for proving the existence and value of goodwill in a professional practice, and Wife presented no other evidence meeting that standard.

As reported earlier, Husband's expert, Selim, used two methods to value the pharmacy. One, "capitalization of earnings" (also used by Meyer), has already been noted in this opinion. The other method used by Selim was the "net asset value" method. As we comprehend Selim's testimony, that method recognizes no value attributable to goodwill. That method, according to Selim, showed the pharmacy was worth $215,000. In contrast, the $231,579 fair market value Selim calculated using the "capitalization of earnings" method included goodwill. However, neither Selim's testimony nor any of Husband's other evidence met the Hanson standard for proving goodwill in a professional practice.

The record demonstrates--as indicated in Wife's first point--that the trial court found the pharmacy "is a retail establishment as opposed to a professional practice." The trial court further found that "the capitalization of earnings approach [is] the most appropriate way of valuing [the pharmacy]."

In response to Wife's first point, Husband maintains the trial court did not err in valuing the pharmacy at $267,684 (even though that figure is higher than either of the sums calculated by Selim). Inasmuch as Husband takes that position, it is obvious that if we deny Wife's first point, we need not decide whether the trial court was correct in treating the pharmacy as a retail business instead of a professional practice.

Wife's expert, Meyer, avowed Stephens Pharmacy has goodwill that can be sold. Included in the goodwill are the pharmacy's location and the pharmacy's reputation. However, when asked by Husband's lawyer whether he (Meyer) could tell the court how much of the pharmacy's fair market value was attributable to goodwill, Meyer replied, "I can't provide that."

Meyer calculated the average "adjusted net earnings" of the pharmacy for the years 1990-95 were $182,280. He then applied a "capitalization rate" and deducted an amount for "lack of marketability." That exercise produced his appraisal, $774,690.

Meyer conceded he did not deduct the cost of employing a pharmacist to operate the pharmacy, nor did he deduct any amount for rent to provide quarters for the pharmacy. His calculations were based on the assumption that a buyer of the pharmacy would be a pharmacist. Meyer acknowledged it would be "crazy" to advise a non-pharmacist to buy the pharmacy for $774,690.

Husband's expert, Selim, testified that in valuing the pharmacy by the "capitalization of earnings" method, it would be "suicide" for a prospective buyer to fail to consider the cost of employing a pharmacist to operate it. According to Selim, the "base salary" of a pharmacist would be $47,000, to which Selim would add "20 percent for the benefits." Furthermore, explained Selim, it is a "serious error" to fail to consider the cost of renting space to house the pharmacy.

The trial court found Meyer's valuation of the pharmacy was flawed in that Meyer failed "to take into account any salary for the pharmacist or owner of the business and [failed] to take into account any rent or cost factor for the building which was not part of the business." The trial court further found that the capitalization rate and the discount rate for lack of marketability are subjective, and the court was unable to determine whether the rates used by Meyer or Selim were correct. Beyond those findings, the decree yields no clue as to how the trial court arrived at $267,684 as the pharmacy's value.

The parties cite scant authority on valuing a family business in a dissolution case. Hanson, cited by both sides, involved a professional practice (oral surgery). 738 S.W.2d at 430. In re Marriage of Brooks, 742 S.W.2d 585 (Mo.App. S.D.1987), cited by Wife, involved a machine and tooling company. Id. at 587.

There are at least two other cases on the subject, but neither is helpful, as each involved a chiropractic practice. Taylor v. Taylor, 736 S.W.2d 388 (Mo. banc 1987); In re Marriage of Parker, 762 S.W.2d 506 (Mo.App. S.D.1988).

Wife argues that Meyer's valuation was not flawed in that "the most likely purchaser would be a pharmacist, whose 'salary' would be the earnings of the business." However, it must borne in mind that if a pharmacist who already owns a pharmacy (and works there full time, as did Husband and Wife) chooses to buy Stephens Pharmacy, the pharmacist will have to employ a pharmacist to operate it.

Furthermore, as we understand the decree, the trial court valued all remaining marital property, in the aggregate, at $903,948.59. However, there were debts, including $184,939 secured by a lien on the business real estate, and $71,335 secured by a lien on the marital residence. Those two debts alone (there were others) reduce the net value of the marital assets (excluding the pharmacy) to $647,674.59.

Had the trial court awarded Wife the pharmacy at a value of $774,690 (Meyer's appraisal) and awarded Husband all remaining marital assets--a net value of $647,674.59 (a misleading sum in that it does not take into account $56,000 in additional debts Husband was ordered to pay)--we suspect Wife would have strenuously complained that the division was unfair to her (even though on...

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