McAffee v. McAffee, 23822
| Decision Date | 05 January 1999 |
| Docket Number | No. 23822,23822 |
| Citation | 971 P.2d 734,132 Idaho 281 |
| Parties | John E. McAFFEE, Plaintiff-Respondent, v. Joann McAFFEE, Defendant-Appellant. |
| Court | Idaho Court of Appeals |
Hopkins, Roden, Crockett, Hansen & Hoopes, Idaho Falls, for respondent.
In this action, we are asked to review the division of property issued by the magistrate in a decree of divorce. We are also asked to review the magistrate's order of clarification and correction which followed the district court's remand on intermediate appeal from the magistrate. For the reasons set forth below, the magistrate's divorce decree, including the order of clarification and correction, is affirmed in part, vacated in part and remanded for further proceedings.
John E. McAffee and JoAnn McAffee were married June 5, 1982. The parties separated on or about June 8, 1992, and John filed for divorce on September 10, 1992. A trial was held in March 1994.
There were many disputed issues at trial, including the value of the parties' stock in Western Catering, Inc. and their percentage of ownership in that closely-held business. The parties also disputed numerous other issues, including the value and characterization of debts and assets.
The magistrate issued its divorce decree and an order dividing the parties' property. Both parties appealed the magistrate's determination to the district court. The magistrate's division of property was affirmed in part, reversed in part, and remanded. Subsequently, John moved for a modification of the magistrate's findings based on the district court's remand on the intermediate appeal. The magistrate issued an order of clarification and correction. JoAnn appeals.
Our review of a magistrate's decision is made independently from, but with due regard for, the decision of a district court sitting in an appellate capacity. Worzala v. Worzala, 128 Idaho 408, 411, 913 P.2d 1178, 1181 (1996); Smith v. Smith, 124 Idaho 431, 436, 860 P.2d 634, 639 (1993). The magistrate's findings of fact will be upheld if they are supported by substantial and competent evidence. Worzala, 128 Idaho at 411, 913 P.2d at 1181; Smith, 124 Idaho at 436, 860 P.2d at 639. In this case, our review encompasses both the magistrate's decree of divorce and the magistrate's order of clarification and correction on remand.
1. Ownership
One of the disputed issues at trial was the parties' ownership in Western. Western was incorporated in 1988. Initially, of the one hundred issued and outstanding shares, forty-nine shares were held in John's name and one in JoAnn's name. The other fifty shares were owned by Tom O'Dell and Sheila O'Dell. Western had a contract with the United States Forest Service to provide food service during forest fires. The contract was On 1/18/94 Ownership of Western Caterers['] Stock was listed as follows:
to expire on May 31, 1994, two months after trial. At the time of trial, it was uncertain whether Western would be awarded another contract. John testified that five of his shares were "redeemed" by the corporation to enable the company to be considered "lady-owned," thereby enhancing Western's prospect of receiving the Forest Service contract. John and Tom O'Dell both testified that the redemption was done informally. In addition, John testified that the five redeemed shares were offered to Western's accountant, Glenn Ritter, and his wife, Joan Ritter. Glenn Ritter, however, testified that he and his wife did not own any Western stock at the time of trial. Glenn Ritter further testified that Western had offered him shares of the company, but he had not yet accepted the offer. Plaintiff's exhibit 26, a letter written by Sheila O'Dell as president of Western, dated February 4, 1994, detailed the ownership of Western:
Sheila ODell 49 Shares
John McAffee 44 Shares
Joan Ritter 4 Shares
Glenn Ritter 1 Share
Joann McAffee 1 Share
Tom ODell 1 Share
John and Glenn Ritter both testified that John's five shares were also redeemed to equalize the obligations that the McAffees and O'Dells owed to Western for advances or loans made to them by the corporation. These obligations were carried on the corporate books as "notes receivable." At the end of fiscal year 1993, the McAffees' obligation was $41,501.63 and the O'Dells' was $24,540.20. John was also going to contribute an asset referred to as the "shower trailer" to Western to partially rectify the difference.
The magistrate found that
On appeal, JoAnn contends that the magistrate erred in concluding that JoAnn's community property rights were not abrogated. First, she contends that in reality there was no debt to the corporation to be discharged by the stock redemption. The advances from the corporation were draws, she asserts, and therefore were income to the McAffees, not loans. JoAnn also asserts that there was no finding as to the value of the stock allegedly transferred by John to Western. Even if there was a debt, she contends that there was an overcompensation because the shower trailer by itself would have substantially equalized the debt. Thus, JoAnn alleges that the redemption of the five shares overcompensated the corporation and significantly reduced the community estate.
The magistrate found that the McAffees' withdrawals created an obligation to the corporation and that the difference in the obligations of the McAffees and the O'Dells was $16,961.43. This finding is supported by the testimony of the corporation's accountant. The magistrate also found that to equalize the difference between the obligations of the McAffees and the O'Dells, five shares of Western's stock were redeemed. At the time of trial and in accordance with the magistrate's valuation of Western in the amount of $135,433.94, 1 five of the one hundred issued and outstanding shares of Western equaled $6,771.70. Adding the shower trailer's value of $2,000, which was stipulated to in a joint exhibit, brings this sum to $8,771.70, well below the actual difference in the obligations. Although JoAnn now values the trailer at $17,000, the evidence demonstrates that her valuation includes $15,000 worth of improvements paid for by Western and included in the valuation of the Western stock.
Based on our review, we conclude that there was conflicting evidence as to whether a stock redemption occurred. Nonetheless, we agree with the magistrate that if the redemption was actually completed, the stock transfer was in lieu of payment of certain community debts which created a net economic benefit to the community. JoAnn's community property rights were therefore
not abrogated or compromised. The magistrate's findings in this regard are supported by substantial and competent evidence, and we find no error.
2. Valuation
At trial, JoAnn called Don Cain, an appraiser who performed a business valuation of Western. Cain testified at length to his valuation of Western, which he classified as an "income approach." Using his methodology, as reflected in his updated appraisal for the 1993 fiscal year, Cain capitalized Western's net income (using the average of net income over several years) and arrived at an estimated value of the business. Cain then added to this amount the value of the tangible assets for a total estimated value of the business, exclusive of land and other building values. On rebuttal, John presented the testimony of Brent Thompson, also an appraiser. Thompson criticized Cain's approach, concluding that Cain erred both in his capitalization rate and in re-including the tangible assets after capitalizing the income.
Finding it flawed, the magistrate declined to follow Cain's income approach. The magistrate considered valuing Western based on the capitalized excess earnings method as stated in Olsen v. Olsen, 125 Idaho 603, 873 P.2d 857 (1994). The magistrate, however, found that Western currently had "no income, no 'excess income' and no profit to capitalize," and that Western was not presently a going concern. The magistrate therefore valued Western at $135,433.94 based solely on the net fair market value of the tangible assets. 2
JoAnn claims the magistrate erred in finding that Western had no income, no excess income and no profit to capitalize. JoAnn also contends that the magistrate erred in concluding that Western was not a going concern and in valuing the company without including goodwill. JoAnn asserts that under Olsen the magistrate should have valued Western using the capitalized excess earnings method which Cain employed in ascertaining Western's value.
Goodwill is an appropriate factor in determining the value of a business. Olsen, 125 Idaho at 606, 873 P.2d at 860. The goodwill of a business "is the custom which it attracts, and the benefits or advantage it receives from constant or habitual customers, and the probability that the old customers will continue to come to the place." Harshbarger v. Eby, 28 Idaho 753, 761, 156 P. 619, 621 (1916), quoting Johnson v. Friedhoff, 7 Misc. 484, 27 N.Y.S. 982, 982 (1894). The determination of whether a business has goodwill is a question of fact. Moffitt v. Moffitt, 813 P.2d 674, 676 (Alaska 1991); See also In re Marriage of Hall, 103 Wash.2d 236, 692 P.2d 175, 179 (Wash.1984).
The capitalization of excess earnings is one method of determining the value of goodwill in a business. 3 Olsen, 125 Idaho at 606, 873 P.2d at 860; Hall, 692 P.2d at 179. See also SHANNON P. PRATT,...
To continue reading
Request your trial
-
May v. May
...all five methods); Hanson v. Hanson, 738 S.W.2d 429, 435-36 (Mo.1987) (discussing all five methods). See also McAffee v. McAffee, 132 Idaho 281, 971 P.2d 734, 740 (App.1999) (discussing straight capitalization and capitalization of excess earnings); Skrabak v. Skrabak, 108 Md.App. 633, 673 ......
-
Batra v. Batra, 26026.
...Idaho 408, 411, 913 P.2d 1178, 1181 (1996); Smith v. Smith, 124 Idaho 431, 436, 860 P.2d 634, 639 (1993); McAffee v. McAffee, 132 Idaho 281, 284, 971 P.2d 734, 737 (Ct.App.1999). The magistrate's findings of fact will be upheld if they are supported by substantial and competent evidence. Wo......
-
Chandler v. Chandler
...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 m......
-
Stewart v. Stewart
...will continue to come to the place." Harshbarger v. Eby, 28 Idaho 753, 761, 156 P. 619, 621 (1916); see also McAffee v. McAffee, 132 Idaho 281, 286, 971 P.2d 734, 739 (1999). The question presented by this case is whether goodwill is an appropriate factor to consider in determining the comm......
-
§ 10.03 Goodwill
...from the reputation of the professional spouse). Idaho: Stewart v. Stewart, 143 Idaho 673, 152 P.3d 544 (2007); McAffee v. McAffee, 132 Idaho 281, 971 P.2d 734 (Idaho App. 1999). Kentucky: Gaskill v. Robbins, 33 Fam. L. Rep. (BNA) 1113 (Ky. App. 2006) (official decision not published); Luca......
-
§ 10.01 The Business Started During Marriage
...15 infra. If there are no excess earnings, there is no goodwill. See Miles v. Miles, 816 P.2d 129 (Alaska 1991).[22] McAffee v. McAffee, 132 Idaho 281, 971 P.2d 734 (1999).[23] See Adams and Adams, 121 Ore. App 187, 854 P.2d 501 (1993). See generally: Rutkin, "Valuation of a Closely Held Co......