Ullom v. Ullom

• Decision Date: 26 May 1989
• Citation: 384 Pa.Super. 514,559 A.2d 555
• Parties: Debra ULLOM, Appellant, v. Roland Garth ULLOM, Appellee. Debra ULLOM, Appellee, v. Roland Garth ULLOM, Appellant. 464 Harris. 1988, 494 Harris. 1988
• Court: Pennsylvania Superior Court

Page 555

559 A.2d 555

384 Pa.Super. 514

Debra ULLOM, Appellant, v. Roland Garth ULLOM, Appellee.

Debra ULLOM, Appellee, v. Roland Garth ULLOM, Appellant.

464 Harris. 1988, 494 Harris. 1988

Superior Court of Pennsylvania.

Argued Jan. 31, 1989.

Filed May 26, 1989.

Lori K. Serratelli, Harrisburg, for appellant in No. 464 and appellee in No. 494.

Paul R. Wagner, Harrisburg, for appellee in No. 464 and appellant in No. 494.

Before WIEAND, POPOVICH and HESTER, JJ.

WIEAND, Judge:

The principal issue in these cross-appeals from an order of equitable distribution is whether "good will," found by the hearing court to be an asset of a closely held corporation, can be excluded from marital property by the court in equitably distributing shares of stock in that corporation.

Debra Ullom and R. Garth Ullom were married on November 26, 1977. From 1972 until the present, and throughout the marriage, husband was employed at Cumberland Valley BMW, Inc., a closely held corporation of which husband's father is president and the majority shareholder. The corporation is a car dealership, engaged in the business of selling BMW and Subaru automobiles. Husband is currently vice president of the corporation, earning approximately $60,000.00 per year in that capacity and also from his earnings as a professional race car driver. Husband is the holder of fifty (50) of the 410 outstanding shares of the corporation's stock. Wife is a graduate of Cornell University, and during the marriage was employed full-time at Cumberland Valley BMW, Inc., earning a salary of $20,000.00 per year. During the marriage, the parties acquired a one-fourth interest in a travel agency business, First World Management of Pennsylvania, which they began with three other couples and where wife currently is employed, earning approximately $9,000.00 per year. No children were born of the marriage. The parties were divorced in a bifurcated proceeding on February 19, 1988. The matter of equitable distribution of the parties' marital assets was referred to a master, who held a full hearing and filed his recommendations on November 10, 1987.

At the hearing before the master, wife presented the report and testimony of William Boles, CPA, which placed a value of $147,150.00 upon the husband's shares of Cumberland Valley BMW, Inc. This sum he arrived at by applying a capitalized earning method and an industry average operator's margin method. He testified that he capitalized the corporation's excess earnings at ten (10%) percent to estimate a good will value of $1,295,130.00 and placed an overall value of the corporation's stock at $1,609,428.00. He then discounted the stock by 12.5% because of its lack of marketability and further discounted husband's minority shares by 12.5%, arriving at the conclusion that husband's shares had a market value totalling $147,150.00. Husband's expert witness, Michael Menear, a CPA and accountant for the corporation, valued the entire corporation at its book value of $355,583.00. He testified that the stock should be valued under the stock purchase agreement at the price at which husband had purchased the shares plus a seven (7%) percent incremental increase per annum. He also valued the stock using an industry average return on tangible assets of 15.7%, a capitalization rate of 15% and a discount factor for husband's minority interest of 50%. By averaging these two methods, husband's expert witness arrived at the value of husband's stock as $21,000.00. This valuation did not include good will as an asset in evaluating the corporation or in valuing the stock. The master accepted the value placed on the stock by wife's expert and determined that the stock should be distributed between the parties at a value of $147,150.00. Husband filed exceptions to the master's recommendations, and the hearing court altered the distribution suggested by the master. It entered the equitable distribution order from which both husband and wife have appealed.

The hearing court valued the marital estate at $102,462.00 and made the following distribution of property in kind to the parties:

To wife:

                First World Management of Pennsylvania
                  stock                                 $20,000.00
                Farmers Trust Company bank account        2,000.00
                BMW automobile                           10,000.00
                Personal property in the residence       18,000.00
                                                        ----------
                                                        $50,700.00
                

To husband:

                Cumberland Valley BMW, Inc. stock       $32,523.00
                Commonwealth National Bank account        5,039.00
                BMW automobile                            9,000.00
                Shelby automobile                         5,200.00
                                                        ----------
                                                        $51,762.00
                

In order to effect a division of property of sixty-five (65%) percent to wife and thirty-five (35%) percent to husband, the court ordered husband to make an additional payment of $15,900.30 to wife.

The principal issue raised by wife on appeal is whether the court erred in its distribution of the fifty shares of stock of Cumberland Valley BMW, Inc. Wife argues that the court acknowledged that good will is a corporate asset to be included in the valuation of a corporation, but incorrectly excluded that asset in distributing the marital property. ¹ Wife also raises other issues regarding the valuation of personal property, ² as well as the court's denial of her request for alimony, counsel fees and costs. Wife concedes, however, that these additional issues have been raised only to balance the distribution should good will be excluded from the distributed assets. Because of our disposition of the wife's first issue, we need not discuss her remaining issues at length. Husband, on cross-appeal, challenges the trial court's determination that the stock of Cumberland Valley BMW, Inc. was marital property, arguing that he obtained the stock prior to the marriage and that, therefore, it should have been excluded from the distribution of marital assets.

On appeal from an order of equitable distribution, this Court's scope of review is limited to a determination of whether the hearing court abused its discretion. Winters v. Winters, 355 Pa.Super. 64, 512 A.2d 1211 (1986); LaBuda v. LaBuda, 349 Pa.Super. 524, 503 A.2d 971 (1986), appeal denied, 514 Pa. 648, 524 A.2d 494 (1987). We are bound by all findings of fact made by the court which are supported by evidence of record. Therefore, only unsupported findings or erroneous applications of the law will justify reversal of an equitable distribution order by this Court. Diamond v. Diamond, 360 Pa.Super. 101, 519 A.2d 1012 (1987), appeal denied, 516 Pa. 633, 533 A.2d 92. "[A]n abuse of discretion is not found lightly, but only upon a showing of clear and convincing evidence.... However, an abuse of discretion will be found by this court if the trial court failed to follow proper legal procedure or misapplied the law." Id. at 106, 519 A.2d at 1014, quoting Braderman v Braderman, 339 Pa.Super. 185, 190, 488 A.2d 613, 615 (1985).

First, we must address whether the hearing court erroneously included the stock of Cumberland Valley BMW, Inc. in the marital assets. Husband argues that one month prior to his marriage he contracted to buy this stock and obtained a loan from his father to do so. The hearing court found, however, that the corporation had merely entered into a stock purchase agreement with husband on that date which allowed him thereafter to purchase fifty shares of stock at $200.00 each, a total of $10,000.00. The court further found that marital funds had been used to pay for the subsequent purchase of the stock. After the final payment was made, the corporation issued a stock certificate to husband on February 27, 1980. The court concluded that the stock was an asset which had been acquired during marriage and that it was, therefore, marital property. This finding is amply supported by the evidence. The "[t]ime of acquisition is the factor that the legislature mandates the courts use in determining whether property is a marital asset." Anthony v. Anthony, 355 Pa.Super. 589, 594, 514 A.2d 91, 93 (1986). Clearly, in this case, although the agreement to purchase the stocks was entered by husband one month prior to the marriage, the stocks were not acquired in fact until they had been paid for in full and a stock certificate had been issued. Both of these events occurred after the marriage had taken place.

Husband also contests the hearing court's determination that the restriction on the stock did not set its value. The restriction provided:

The stock so sold shall be restricted so that it cannot be transferred to a third party without first offering it to the Corporation. Additionally, the Corporation will be obligated to repurchase the shares upon termination of employment of any of the aforesaid employees for a price equal to their cost plus an increment of 7% per annum.

The court found that this provision did not limit the value of the stock but only required the seller to offer the shares to the corporation. The evidence supports the court's interpretation that if the corporation was unwilling to pay the seller's asking price, the seller was free to sell to another buyer.

The next issue presents a more difficult problem. The hearing court, in rejecting the master's recommendation to distribute the stock at a value which included good will, cited Beasley v. Beasley, 359 Pa.Super. 20, 518 A.2d 545 (1986), appeal denied, 516 Pa. 631, 533 A.2d 90 (1987), in which the Superior Court had held that good will was not an element in the valuation of the solo practice of an attorney. However, the Court there did "not ... say that good will expressed as a share of a partnership or professional corporation, with an ascertainable value which can be purchased or transferred, is to be excluded." Id. at 42 n. 4, 518 A.2d at 556 n. 4. The hearing court,...