Thill v. Thill

• Citation: 26 S.W.3d 199
• Parties: (Mo.App. W.D. 2000) Anne C. Thill, Appellant, v. Ronald E. Thill, Respondent. WD57151 0
• Decision Date: 31 May 2000
• Court: Missouri Court of Appeals

26 S.W.3d 199 (Mo.App. W.D. 2000)

Anne C. Thill, Appellant, v. Ronald E. Thill, Respondent.

WD57151

Missouri Court of Appeals Western District

05/31/2000

Appeal From: Circuit Court of Cole County, Hon. Patricia S. Joyce

Counsel for Appellant: Jean Goldstein

Counsel for Respondent: Paul Trees Graham

Opinion Summary: Anne Thill appeals the judgment dissolving her marriage to Ronald Thill.

Division holds: In valuing two wholly separate business entities, which are combined for purpose of losses, they should be consistently treated with regard to income and assets.

In calculating child support, the trial court must consider the issues raised by the Directions and Comments for Use of Form 14.

In awarding or denying attorney's fees, the parties' financial situation is not a controlling factor but one of several relevant factors. The trial court must hear evidence on and consider all factors set forth in section 542.355.1.

The trial court did not abuse its discretion in awarding a disproportionate property distribution.

Ronald R. Holliger, Judge

Anne Thill ("Wife") appeals a Judgment and Decree of Dissolution of Marriage entered on March 22, 1999 dissolving her eighteen-year marriage to Ronald Thill ("Husband"). Wife raises six points on appeal. Two points deal with the valuation made by the court of Husband's interest in two closely held corporations; Wife attacks the calculation of Husband's income for child support purposes; she contends the court erred in making an unequal distribution of property based on a finding of her misconduct; she claims the court erred in denying her attorney's fees; and in her last point, she claims error in the omission and valuation of several other pieces of property. Wife does not appeal the grant of maintenance to her or the custody determinations for their two children. We affirm in part and reverse in part for further proceedings.

BACKGROUND

Husband owns 49 percent of the shares of two "Subchapter S" corporations,¹ CSPI, Inc., Missouri ("Mo. Corp.") and CSPI, Inc., Delaware ("Del. Corp."). There is one other shareholder. Husband is also a member of two partnerships which own real estate. One partnership owns the office building used by the two corporations and a residence built for Husband after his separation from Wife. The other partnership owns hangars at the Jefferson City airport, where planes used in the Husband's business are housed. No error is alleged with regard to the valuation of the partnerships.² The parties also own a farm, where Wife and the children continue to live; Wife stables some horses there, including show horses ridden by their daughter; the parties own various other property which will be discussed only as relevant to a particular issue.

Mo. Corp. sells and maintains computer hardware and software for the small banking industry with customers in at least a dozen states. To more efficiently service its customers, Mo. Corp. flies it employees by private planes to the various sites. Del. Corp., the owner of those airplanes, was established for the sole purpose of owning and operating the planes.

Husband was ordered to pay Wife $1,443.68 per month for the support of their two children. He was also ordered to pay Wife $1,000 per month for maintenance for a period of three years. The court's judgment found Husband's income to be $12,123.92 per month and imputed income to Wife of $700 per month. The court prepared its own Form 14 using an income figure, however, of $10,877.92 for Husband. The court also gave Husband a Line 10 overnight visitation credit of 10 percent based on a basic child support amount of $1,726.

The trial court also made a disproportionate division of the marital property based on an express finding that Wife had committed marital misconduct. Husband was awarded 60 percent of the marital assets.

STANDARD OF REVIEW

Our review is governed by Murphy v. Carron, 536 S.W.2d 30, 32 (Mo. banc 1976). We will affirm the trial court's judgment unless it is against the weight of the evidence, it is not supported by the evidence or it erroneously declares or applies the law. Id. The trial court is permitted great flexibility in its division of marital property. Woolridge v. Woolridge, 915 S.W.2d 372, 376 (Mo. App. 1996). The trial court is free to believe or disbelieve all, part, or none of the testimony given by any of the witnesses. Price v. Price, 921 S.W.2d 668, 671 (Mo. App. 1996). Evidence and favorable inferences are accepted and contrary evidence disregarded. Welker v. Welker, 902 S.W.2d 865, 867 (Mo. App. 1995).

VALUATION OF THE CLOSELY HELD CORPORATIONS

Valuation of the stock of a closely held corporation is a difficult matter. Hoffmann v. Hoffmann, 676 S.W.2d 817, 826 (Mo. banc 1984). In a dissolution proceeding, the object of any valuation of a business is, of course, to determine its fair market value for purpose of application of the equitable distribution rules to arrive at a fair property division. The very attributes that simplify valuation of publicly held stock, a ready market and historical sales record, are absent with a closely held corporation.³ Value is a determination of fact by the trial court, to which we give great deference. In re Marriage of K.B., 648 S.W.2d 201, 206 (Mo. App. 1983). No one formula or method of determining value is binding or conclusive. Miranda v. Miranda, 596 S.W.2d 61, 65 (Mo. App. 1980). "The judicial determination of value must be an informed judgment, but fair 'value' is not susceptible of determination by any precise mathematical computation ...." Flarsheim v. Twenty Five Thirty Two Broadway Corp., 432 S.W.2d 245, 255 (Mo. 1968). Generally, therefore, the trial court can accept the opinion of one expert as to value over another and can prefer one method of valuation over competing methods based on the particular facts of the case and the circumstances of the corporate entity involved. Id. There are a number of various valuation methodologies which fall within one of the following broad categories: (1) earnings approach; (2) liquidation ("underlying asset") approach; and (3) comparable sale approach. Some experts may, in fact, use some combination of these approaches.⁴

Husband retained as an expert witness James Marberry. He used a discounted capitalized excess earnings method⁵ and a comparable sale method. He indicated that there were difficulties inherent in and specific to the comparable sale method in this case. As the value he opined was higher, and he believed more reliable, under the earnings method, that was the method he found preferable. Marberry testified that the value of Mo. Corp. was $775,399 before determination of Husband's interest. He believed, however, that value should be further adjusted to reflect a lack of marketability ("marketability discount")⁶ and Husband's minority interest in the corporation ("minority discount").⁷ The discount percentages he used were 34 percent and 30 percent, respectively. He thus calculated Husband's interest to be worth $175,535 as of a date (based on then available information) approximately one year before trial. By later supplemental testimony, using 1998 data, he arrived at a final opinion of the value of Mo. Corp., and that Husband's interest was $159,265.

Wife also presented expert testimony, through Leslie Lorts. Like Marberry, he also used the excess earnings method. He agreed that marketability and minority discounts should be applied, but utilized different figures than Marberry -- 20 percent and 15 percent, respectively. He concluded that, as of December 31, 1998, Husband's interest in Mo. Corp. had a value of between $845,253 and $1,264,834.⁸

Both experts used weighted net average income figures in their methods, although with slightly different weights and a one-year difference in the start year. The most substantial difference in methodology was Marberry's use in valuing Mo. Corp. of the depreciation on the airplanes owned by Del. Corp. Marberry deducted this depreciation from Mo. Corp.'s earnings in making his calculations. Both experts' opinions were admitted without objection. It is the use of Del Corp.'s depreciation to reduce Mo. Corp.'s earnings, and therefore value, that leads to Wife's first point on appeal.

Wife first argues that the trial court erred in valuing Mo. Corp. because the valuation accepted from Husband's expert used tax losses from the separate Del. Corp. to reduce the value. Specifically, Wife complains the net operating losses and depreciation from the Del. Corp. were used by the expert in determining the Mo. Corp.'s fair market value. She claims this was improper both for the reason that they were separate legal and tax entities, and because downward adjustments for depreciation were not justified because the depreciation was a "paper loss" and the airplanes had actually maintained their value, if not appreciated.⁹ Husband argues in response that it was proper to adjust Mo. Corp.'s value by use of the Del. Corp.'s operating losses and depreciation because the two corporations were essentially integrated by function and that the only reason for maintaining separate corporations was to enhance the appearance of Mo. Corp.'s balance sheet to its customers.¹⁰

Neither party has favored us with any authority, legal or accounting, supporting or rejecting the treatment or use of the Del. Corp.'s operating loss and depreciation by Husband's expert in this case. In fact, Wife's expert testified he would have no particular objection to consolidating the income statements and balance sheets of the two corporations. He disagreed, however, with Marberry's consolidation since it was only partial. Marberry did not utilize, at a minimum, Del. Corp.'s assets as well as operating losses and depreciation. To have included those assets along with the actual assets of Mo. Corp. would certainly have increased his valuation.¹¹ The parties spend considerable time arguing whether depreciation is an economic...