Miranda v. Miranda, WD

• Decision Date: 03 March 1980
• Docket Number: No. WD,WD
• Citation: 596 S.W.2d 61
• Parties: Lucille Marie MIRANDA, Appellant, v. Donald V. MIRANDA, Respondent. 30422.
• Court: Missouri Court of Appeals

Page 61

596 S.W.2d 61

Lucille Marie MIRANDA, Appellant, v. Donald V. MIRANDA, Respondent.

No. WD 30422.

Missouri Court of Appeals, Western District.

March 3, 1980.

Ronald R. Holliger, Kansas City, (Koenigsdorf, Kusnetzky & Wyrsch, Kansas City, of counsel), for appellant.

Michael J. Albano and Michael W. Manners, Independence, (Paden, Welch, Martin, Albano & Graeff, Independence, of counsel), for respondent.

Before KENNEDY, P. J., and PRITCHARD and SWOFFORD, JJ.

PRITCHARD, Judge.

In this appeal from a decree of dissolution of marriage, the issues are whether the trial court properly divided the marital property, and in particular in connection therewith, whether the family-owned corporation was correctly evaluated for division of property; and whether the trial court properly denied appellant-wife maintenance.

The parties were married December 31, 1949. Three children were born of the marriage two of whom were emancipated, and the custody of the younger daughter was awarded appellant, along with a child support award of $30.00 per week.

Since 1965, the parties were jointly engaged in a corporate enterprise, Li'l Guy Foods, Inc., which manufactured and distributed various Mexican food products. Appellant owned 49% of the stock and respondent owned the balance, 51%. Appellant became active in the business in 1968, working on the production line when needed and in supervising help. Later she began doing part of the business paperwork in checking route books, invoices, and checking in drivers. Appellant's hours varied, but she testified that both parties worked in the business often ten to twelve hours a day. Although respondent denied it, appellant testified that she tested and modified recipes used in the products. The business prospered so that it was able to pay $41,600 as combined executive salaries to the parties, although that amount is not readily apparent from a four-year work sheet of income and adjustments, Exhibit 7.

The parties purchased a building for $140,000.00 in 1976 at 2340 Vernon Street in North Kansas City, which was leased to the corporation at $1,000.00 per month. At the time of trial, the corporation was behind $12,000.00 in lease payments.

As to the valuation of the corporate business, appellant's witness, James Harkins, a C.P.A. with experience in valuing corporate stock, testified that he examined corporate financial statements and tax returns for four years prior to March 31, 1977, and used a capitalized earnings method for his valuation on the average of adjusted earnings. He then used a multiplier of 7, which would return about 14% yield on investment, which he testified would be appropriate for this type of business. Using this method, Harkins came up with a valuation of about $165,000.00. In arriving at that figure, Harkins adjusted upwards the earnings because appellant's duties could be done on a part-time basis, about 20 hours a week for an annual salary of $5,200.00, rather than the $20,800.00 she was paid; her social security payments would have been saved; he removed the depreciation and expenses on respondent's personal automobile; he removed non-recurring moving expenses; donations; and non-business type entertaining. He relied upon information given him by appellant's counsel as prepared by the corporation's accounting firm, Wright, Herford and Sanders. He acknowledged that he did not get general ledger information, which would have raised or lowered his valuation; if the information given him was erroneous, it is possible that the appraisal was too high; and he did not take into account the business year, March 31, 1977 through March 31, 1978, because they were not made available to him until the day of trial. (Defendant's Exhibit 10 indicates that from April, 1977 to March, 1978, there was a loss of $16,506.74.)

Respondent's witness, Lawrence D. Ashley, a lawyer and a C.P.A., testified that he reviewed the corporate tax returns and financial statements for the past five years. He also inspected the plant and equipment. There was no established market value for this type of stock. Based upon the book value method, Ashley arrived at a valuation of $60,000.00; and on the capitalized earnings method, which was basically the same as that used by Harkins, he arrived at a value of $44,000.00. Both of these methods are widely used for valuing businesses, but the capitalized earnings was preferable to use. Ashley testified that his method differed from Harkins in that he used a 15% discount factor because of lack of marketability; and he used a lesser adjustment for replacement of appellant's duties as well as raising respondent's salary for his duties. He used the same multiple of seven as applied to net earnings.

Otto Paul Mertens, C.P.A., had handled the records for Li'l Guy Foods, Inc., since 1970, he being associated, and later a partner, with Wright, Herford and Sanders, in Independence, Missouri. He evaluated the corporate business using its figures setting out its financial status as of March 31, 1978, for one figure, $67,587.29, but for the prior year (1977), his evaluation was $81,183.58. The method he used is known as the Hostead formula, which is used extensively by the Treasury Department. The earnings are "broken down between a factor that's related to a return on investment and a return on good will. The return on investment is subtracted from an average net earnings for a five-year period. The residual earnings then is capitalized, to determine the value of the good will of the corporation. This value of good will is then added to the book value of the corporation, to arrive at a total value of the corporation, which then is discounted for certain items, in this case, lack of marketability." Mertens' method differed from the other two accountants (Harkins and Ashley) in that they used earnings solely as a value for consideration of capitalized earnings, while he gave effect to the book value of the corporation, "plus capitalized good will or capitalized earnings to arrive at a good will factor." Defendant's Exhibit 13, although offered, was not received in evidence during the first hearing, but Defendant's Exhibit 9, which Mertens prepared using Exhibit 13, was received in evidence. Because of a dispute as to the production of Exhibit 13, the court recessed until June 12, 1978. Mertens was excused subject to being recalled.

Upon resuming, Harkins again took the stand. After the first hearing, he and Ashley were asked to go to the corporate premises and examine the records at that location to see if there had been any misstatement of income and earnings which might affect the valuation. Ashley and he were of the opinion that a formal audit was not necessary because it would have been time- consuming. In examining the records of gross sales, upon which commissions were paid drivers, they determined for the three years there were differences: in 1975, $10,251; in 1976, $4,942; and in 1977, $10,252. These figures do not reflect in-house sales or expenses of drivers, Harkins and Ashley believing those items would offset each other. They made adjustments for personal use of a company automobile, entertainment expenses, moving expenses, salaries for both parties, F.I.C.A. taxes for appellant, and apparently an increase in gross sales as computed from drivers' commissions. The income was averaged for five years, applied the factor "for sales that may not have been reported, used a multiplier of 7, a marketability...