Don't Miss

OWENS v. OWENS




NOTICE: The opinions posted here are subject to formal
revision. If you find a typographical error or other formal error, please notify
the Virginia Court of Appeals.


OWENS

v.

OWENS


COURT OF APPEALS OF VIRGINIA

Present: Judges Annunziata, Clements, and Kelsey

Argued at Salem, Virginia

Record No. 3140-02-3

EWELL JAMES OWENS

v.

THELMA JOSEPHINE WADE OWENS

 

OPINION BY JUDGE D. ARTHUR KELSEY

DECEMBER 16, 2003

FROM THE CIRCUIT COURT OF BUCHANAN COUNTY

Michael L. Moore, Judge

Robert M. Galumbeck (Dudley, Galumbeck, Necessary and

Dennis, on brief), for appellant.

Monica Taylor Monday (Robert B. Altizer; Gentry Locke

Rakes & Moore; Gillespie, Hart, Altizer & Whitesell,
P.C.,

on brief), for appellee.

Ewell James Owens appeals four aspects of the trial court’s
equitable distribution award

in this divorce case. He claims the trial court erred by failing
to (a) apply a minority discount to

his stock in a closely held company, (b) reduce the award to
account for tax consequences that

would arise upon a future sale of the stock, (c) adjust the
award to back out his personal wages

from the company that had been previously incorporated into the
cash-flow valuation model, and

(d) allow him more than four months to pay the cash award before
docketing the monetary

judgment against him. Finding that the chancellor did not abuse
his discretion, we affirm.

I.

When reviewing a chancellor’s decision on appeal, we view the
evidence in the light

most favorable to the prevailing party, granting her the benefit
of any reasonable inferences.

Congdon v. Congdon, 40 Va. App. 255, 258, 578 S.E.2d 833, 835
(2003). "That principle

requires us to discard the evidence of the appellant which
conflicts, either directly or

inferentially, with the evidence presented by the appellee at
trial." Id. (citations and internal

quotation marks omitted).

Ewell Owens ("husband") and Thelma Owens
("wife") married in 1989. By final decree

dated October 30, 2002, the trial court granted wife a final
divorce on no-fault grounds. The

chancellor heard ore tenus evidence regarding equitable
distribution of the marital property.

Neither party sought spousal support.

The marital property included, among other things, husband’s
shares in Dominion Office

Products, Inc., a closely held corporation started by husband
and his brother in 1989. They own

equal shares of the business. To assist in the venture, wife
signed promissory notes guaranteeing

the loans for start-up capital. When the company failed to
produce income in the first few

months, wife returned to full-time employment as a nurse to
support the family, which included

their two children and two children from husband’s prior
marriage. Wife also maintained health

insurance for the entire family from 1989 to 1997. While working
part time, wife attended law

school at Appalachian School of Law. After passing the bar in
2000, wife took a job working at

a law firm in Abingdon, Virginia, earning $50,000 a year.

Dominion Office Products, Inc. operates as a retail office
supply and equipment business

that also provides maintenance and repair services. Husband is
president of Dominion, and his

brother is secretary and treasurer. Husband also works as one of
five salesmen for the company,

while his brother manages the office. As equal owners, husband
and his brother over the years

have received the same salary and drawn the same bonuses twice a
year. Their income from the

business has grown steadily from about $77,000 each in 1999, to
$85,000 each in 2000, and then

to almost $90,000 in 2001. The company has never declared any
dividends. It leases its

premises from J&E Leasing L.L.C. ("J&E"),
another company owned equally by husband and

his brother.

At trial, the chancellor received differing expert opinions from
accountants hired by

husband and wife to value Dominion.[1]Both
accountants employed variations of the

capitalization-of-earnings approach. Wife’s accountant,
Raymond Froy, used a "monthly net

revenue" model that produced a total value of $1,067,527
and an alternative "owner’s cash flow"

model that resulted in a total value of $1,255,853. This latter
model extrapolated equity value by

capitalizing earnings using a multiple of 3 against an adjusted
annual revenue stream.

Froy testified that he would not reduce this valuation figure
(either for a minority

discount, potential tax liabilities, or husband’s salary
adjustments) because such changes

presuppose a sale of the shares — an assumption Froy said he
did not make. Froy also pointed

out that, at the end of the most recent financial reporting
cycle, the company had about $140,000

cash-on-hand after the payment of officers’ salaries. The
average monthly income had increased

over the past three years by 42%. The company, Froy concluded,
was "[v]ery profitable."

Husband’s expert, Steve Wood, also served as the company’s
accountant. He too used

the "owner’s cash flow" model and produced two
values: $871,320.68 with a multiple of 2, and

$1,163,923.52 with a multiple of 3. Wood, however, then adjusted
these valuations by reducing

them with a one-third minority discount ($145,074.89 and
$193,793.27 respectively), a further

reduction for estimated capital gains tax ($74,825.75 and
$99,953.39 respectively), and an

adjustment for the husband’s salary ($100,000 and $150,000
respectively). These changes

reduced the husband’s share of the multiple 2 valuation figure
to $115,759 and the multiple 3

figure to $138,215.10.

Wood supported his position on the minority discount by
asserting that any equity

interest in a closely held company less than 51% should be
considered a "minority interest" and

should be discounted in value by one third to reflect the
absence of decisionmaking control. The

amount of the discount turns, Wood stated, on "the amount
of control that the person has over

the corporation." Because Dominion has two equal owners, he
concluded, "no one has a

majority interest in this corporation." If he were
"advising a potential buyer," Wood explained,

he would calculate a minority discount into the purchase price
of a 50% equity interest in

Dominion.

With respect to the capital gains tax, Wood agreed that the
equitable distribution award

standing alone had no tax consequences. But if husband had to
sell his shares of the company to

a third person to raise funds to pay a cash award, Wood pointed
out, a capital gains tax would be

assessed against him as the seller. Absent such a sale, he
conceded, no capital gains tax liability

would accrue because no taxable gain would be realized.

Wood also advocated backing out of the valuation model the
portion of husband’s salary

attributable to his salesman position as well as the portion of
his brother’s salary attributed to his

manager’s position. Wood argued that upon a sale of the
company the new owner would likely

replace husband and his brother with two new employees. As Wood
explained it: "The theory

was that if they were not there running the business, someone
would have to be paid to do their

jobs and that was the basis for reducing the salaries."
Wood thus added $100,000 to the revenue

column (before applying the multiplier), a figure roughly
representing a $50,000 salary for

husband and his brother.

When asked about the "intrinsic value" concept used in
domestic relations law and the

various market-driven models used in commerce, Wood said he
would only "tentative[ly] agree"

that a distinction should exist between the two. In his way of
thinking, "the only way to come up

with a value of something is what is it worth if you sell
it."

The chancellor heard considerable testimony on whether it would
be necessary for

husband to sell his shares in the company. Wood testified that
husband would likely "have to

either borrow money or sell a part of his
interest in the company" to pay any significant cash

award ordered by the court. At no point in his testimony,
however, did Wood state that a

reasonable loan could not be obtained from either Dominion,
J&E, or an institutional lender.

Nor did he specifically say that, even with a loan, a partial
sale would still be probable. And he

never testified that a sale of all shares would be required.
Finally, Wood offered no suggestion

that any independent business reason (unrelated to the divorce)
would make a sale likely. "We

hope not to sell the business," Wood explained.

When questioned about a possible sale of the business, husband
testified that he would

not ask his "brother to do that because of the effort he’s
put forth in that business." Like Wood,

husband offered no information about the availability of any
loans on the open market secured

by a stock pledge from Dominion or J&E or whether he could
borrow funds directly from either

of his corporations to create liquidity. Nor did he or Wood
testify about what portion of his

Dominion stock might be liquidated and how a partial sale of
that stock would affect the various

discounts requested.

After hearing this evidence, the chancellor accepted the lower
of the two valuation

figures offered by husband’s expert. This placed the company’s
value at $871,320 (using a

multiple of 2) and made husband’s 50% interest worth $435,660.
The court refused, however, to

reduce this figure with the three adjustments requested by
husband and recommended by Wood.

Dominion, the court noted, was "being valued for equitable
distribution purposes, not for sale."

No evidence persuaded the chancellor that a sale was probable,
much less necessary. Husband

filed a motion to reconsider, which the trial court denied.

In its final decree, entered on October 30, 2002, the trial
court distributed to husband his

shares in Dominion (valued at $435,660) and J&E (valued at
$80,428), one-half of the retirement

and investment accounts, and various personalty. The court
distributed to wife the marital

residence (valued at $110,000), one-half of the retirement and
investment accounts, and various

personalty. The final decree also awarded $196,700 to wife and
ordered that the docketing of

this monetary judgment against husband be deferred for four
months following the final decree.

II.

We begin with the governing standard of review. A decision
involving the equitable

distribution of marital property "rests within the sound
discretion of the trial court," Mir v. Mir,

39 Va. App. 119, 125, 571 S.E.2d 299, 302 (2002) (citation
omitted), and can be overturned only

by a showing of an abuse of that discretion. "An abuse of
discretion can be found if the trial

court uses ‘an improper legal standard in exercising its
discretionary function,’" Congdon, 40

Va. App. at 262, 578 S.E.2d at 836 (citation omitted), because
"a trial court ‘by definition abuses

its discretion when it makes an error of law,’" Shooltz
v. Shooltz, 27 Va. App. 264, 271, 498

S.E.2d 437, 441 (1998) (quoting Koon v. United States, 518 U.S.
81, 100 (1996)).

A trial court also abuses its discretion by failing "to
consider the statutory factors

required to be part of the decisionmaking process,"
Congdon, 40 Va. App. at 262, 578 S.E.2d at

836-37 (citing Rowe v. Rowe, 24 Va. App. 123, 139, 480 S.E.2d
760, 767 (1997)), or by making

"factual findings that are plainly wrong or without
evidence to support them," id. at 262, 578

S.E.2d at 837 (citing Northcutt v. Northcutt, 39 Va. App. 192,
196, 571 S.E.2d 912, 914 (2002)).

When a chancellor hears evidence ore tenus, we give his
findings "great weight" on appeal,

Watts v. Watts, 40 Va. App. 685, 690, 581 S.E.2d 224, 227
(2003); King v. King, 40 Va. App.

200, 212, 578 S.E.2d 806, 813 (2003), because, unlike us, he has
the "opportunity to see and hear

that evidence as it is presented," Thomas v. Thomas, 40 Va.
App. 639, 644, 580 S.E.2d 503, 505

(2003) (quoting Sandoval v. Commonwealth, 20 Va. App. 133, 138,
455 S.E.2d 730, 732 (1995))

(internal quotation marks omitted). In this respect, his
findings have the "same weight as a jury

verdict" and are entitled to the same level of deference.
Chesterfield Meadows Shopping Ctr.

Assocs., L.P. v. Smith, 264 Va. 350, 355, 568 S.E.2d 676, 679
(2002). For these reasons, we

will not decide any appeal "on the basis of our supposition
that one set of facts is more probable

than another." Fox v. Fox, 41 Va. App. 88, 96, 581 S.E.2d
904, 908 (2003) (citation and internal

quotation marks omitted).

III.

A. Minority Interest Discount

Virginia’s equitable distribution law employs the concept of
"intrinsic value" when

determining the worth of certain types of marital assets. See
Howell v. Howell, 31 Va. App.

332, 339, 523 S.E.2d 514, 517 (2000). "Intrinsic value is a
very subjective concept that looks to

the worth of the property to the parties." Id. It cannot be
limited by objective criteria commonly

used in open market transactions:

The item may have no established market value, and neither party

may contemplate selling the item; indeed, sale may be restricted
or

forbidden. Commonly, one party will continue to enjoy the

benefits of the property while the other must relinquish all
future

benefits. Still, its intrinsic value must be translated into a

monetary amount. The parties must rely on accepted methods of

valuation, but the particular method of valuing and the precise

application of that method to the singular facts of the case
must

vary with the myriad situations that exist among married
couples.

Id. at 339, 523 S.E.2d at 517-18; Bosserman v. Bosserman, 9 Va.
App. 1, 6, 384 S.E.2d 104, 107

(1989) (observing that Virginia courts "must determine from
the evidence that value which

represents the property’s intrinsic worth to the
parties").

The intrinsic value principle applies to stock in a family owned
company. Closely held

shares may be subject, for example, to mandatory buy-out
provisions at artificially low prices.

Such provisions "do not necessarily represent the intrinsic
worth of the stock to the parties" and

thus are "not conclusive as to the value of the
stock." Bosserman, 9 Va. App. at 6, 7, 384 S.E.2d

at 108. The marketability restriction should be viewed simply as
one factor in the valuation

model. Id. Further, when the controlling interests in a family
company oppress a minority

shareholder or use a "substantial amount of the corporation’s
assets" for their own personal

benefit, the trial court may take that fact into consideration
in determining the value, if any, of

the minority interest. Jacobs v. Jacobs, 12 Va. App. 977, 979,
406 S.E.2d 669, 671 (1991). But

when no evidence suggests that the stock should be
"discounted because it represented a

minority holding," Bosserman, 9 Va. App. at 9, 384 S.E.2d
at 110, the trial court should give the

stock its proportionate value.

In this case, husband argues that the chancellor
"misinterpreted" the meaning of a

minority interest and that "anything less" than a 51%
interest should be deemed a minority

interest requiring — as a matter of law — the application of
a minority discount. We disagree.

When analyzed under the intrinsic value approach, husband’s
position as a 50% owner does not

necessarily mandate the use of a minority discount. Though
husband’s brother serves as office

manager, no evidence suggested the brother ever used this
position to exercise authoritarian

control of the company or in any way to imperil husband’s
equal share of the distributive profits.

Nor did any evidence show that the brothers have ever disagreed
about the strategic direction of

the company or disputed among themselves the management of the
finances.

While the potential for disharmony always exists between
co-owners, so too do legal and

equitable remedies. Virginia law requires all directors to
exercise their fiduciary duties to

preserve the best interests of the corporation, Code ?
13.1-690(A), provides remedies when a

director acts "in a manner that is illegal, oppressive, or
fraudulent" or has "misapplied or wasted"

corporate assets, Code ? 13.1-747(A)(1)(b) & (d),
authorizes derivative suits in equity where

appropriate, Code ?? 13.1-672.1 to 13.1-672.5,[2]
and provides a mechanism to dissolve a

corporation and to distribute its assets in the face of an
intractable director deadlock, Code

?? 13.1-747(A)(1) (stock companies) & 13.1-909(A)(1)
(nonstock companies).

In this case, given the absence of any suggestion of actual
oppression relating to

husband’s alleged minority status coupled with the
availability of judicial remedies for the most

egregious forms of potential oppression, we reject husband’s
assertion that his position as an

equal co-owner should entitle him as a matter of law to a
minority discount for equitable

distribution purposes.

Husband also argues that he may have to sell his stock shares to
raise the necessary funds

to pay the equitable distribution award. In this context, he
reasons, the minority discount

approximates "how much less money will be available for
distribution if he were to sell any of

his interest." This argument relies not on any actual
prejudice to his equity position due to its

alleged minority status, but rather on the perceived prejudice
third-party buyers may fear if they

were to buy husband’s stock. Sometimes coupled with (or simply
labeled) a marketability

discount,[3]this
particular adjustment presupposes a probable sale of the stock. If a sale is

improbable, the discount need not be applied. See, e.g., Howell,
31 Va. App. at 345, 523 S.E.2d

at 521 (approving trial court’s rejection of minority and
marketability discounts for a minority

equity interest in a law partnership where "no transfer of
the partnership interest was foreseeable

and no one in the firm, nor any group within it, exercised
majority control").

The evidence in this case failed to persuade the chancellor that
a sale was probable. We

see no basis to overturn this factual finding on appeal. At
trial, husband’s expert merely

speculated that husband would likely "have to either borrow
money or sell a part of his interest

in the company" to pay a cash award.[4]When
asked directly what his intentions were, husband

denied any interest in selling any of his shares and made clear
he would do so only if it were

absolutely necessary. Neither husband nor his expert witness,
however, provided any evidence

addressing the availability of a stock-pledge loan from either
of husband’s companies or from

any institutional lenders. Nor did either provide any reliable
basis for the chancellor to conclude

a sale (whether partial or total) would be a reasonable response
to the unavailability of financing

or the high cost of obtaining it. The chancellor, therefore, did
not abuse his discretion by

refusing to apply a minority discount under these circumstances.

B. Trapped-In Capital Gains Tax Liability

Husband contends that the trial court should have adjusted the
equitable distribution

award to reflect the fact that, whether probable or not, a
future sale of his shares would trigger

the imposition of capital gains tax. We agree that the trial
court has discretion to make such an

adjustment if the circumstances warrant, but disagree that not
doing so in this case constitutes an

abuse of that discretion.

Every appreciating asset has a cost basis that serves as a
baseline for determining capital

gains tax liability. As a general rule, the gain is realized and
the tax imposed upon the sale of the

asset. When valuing an asset under Code ? 20-107.3(A),
the party asserting that the value of the

asset should be discounted for capital gains tax liability must
prove the probability of an actual,

not merely hypothetical, sale of the asset. See Arbuckle v.
Arbuckle, 22 Va. App. 362, 470

S.E.2d 146 (1996) (Arbuckle I), later appeal, 27 Va. App.
615, 500 S.E.2d 286 (1998) (Arbuckle

II). This principle is no more than the application of the maxim
that "valuation cannot be based

on ‘mere guesswork.’" Arbuckle II, 27 Va. App. at 618,
500 S.E.2d at 288 (observing that a

discount assuming a sale should be disallowed if "too
speculative"); see also Gary N. Skoloff, et

al., 3 Valuation and Distribution of Marital Property ?
22.08[3][a], at 22-94 (2003) (noting that a

discount "should be disallowed, however, absent proof that
such a sale actually took place during

the marriage or will occur in connection with
dissolution"); Brett R. Turner, Equitable

Distribution of Property ? 8.10 (2d ed. 1994 & Supp. 2003)
("Most courts have held that tax

consequences can be considered only if a taxable event is
reasonably likely to take place at the

time of divorce or within a reasonable time thereafter.").

Once the chancellor has valued the assets, however, he then must
engage in the

conceptually distinct task of determining a fair distribution of
those assets between the parties.

See Arbuckle II, 27 Va. App. at 618, 500 S.E.2d at 288. While
engaged in this task, Code

? 20-107.3(E)(9) directs the court to consider "tax
consequences to each party" created by the

distribution of assets in an equitable distribution award. This
injects a level of subjectivity into

the decisional process not permitted during the valuation stage
of an equitable distribution case,

as a comparison of Arbuckle I and Arbuckle II well illustrates.
The inability to prove a probable

sale precluded the use of a capital gains tax debit on the
valuation of the shares in Arbuckle I, but

posed no impediment on the chancellor’s decision to factor the
potential tax liability into the

distributive award in Arbuckle II. This seeming inconsistency
stems from a fine, but critical,

distinction in the statutory design. "After the valuation
process is completed, the statutory

scheme recognizes . . . that a degree of imprecision will be
inevitable in applying the factors of

Code ? 20-107.3(E)." Arbuckle II, 27 Va. App. at 618, 500
S.E.2d at 288. As a result, when

distributing assets, the trial court in the exercise of its
discretion may take into account the fact

that the spouse receiving an asset with a cost basis less than
its fair market value will "bear the

responsibility of the capital gains tax" if that spouse
chooses to "later sell the property." Barnes

v. Barnes, 16 Va. App. 98, 106, 428 S.E.2d 294, 300 (1993)
("The trial judge did not err by

considering and noting that the tax law would require the
husband to pay any future capital gains

tax that may become due.").

Code ? 20-107.3(E)(9), however, does not mandate that a trial
court reduce an award for

potential capital gains tax consequences no matter how certain
or uncertain they may be.

Subsection E(9) requires only that the trial court consider tax
consequences when formulating an

equitable distribution award. What weight, if any, to assign to
this factor in the overall decision

lies within the trial court’s sound discretion. Under settled
law, "the trial court must consider

each of the statutory factors, but may determine what
weight to assign to each of them."

Thomas, 40 Va. App. at 644, 580 S.E.2d at 505 (emphasis added);
see also Watts, 40 Va. App. at

698, 581 S.E.2d at 231. Along these lines, we have often
"recognized that the trial court’s job is

a difficult one, and we rely heavily on the discretion of the
trial judge in weighing the many

considerations and circumstances that are presented in each
case." Thomas, 40 Va. App. at 644,

580 S.E.2d at 505 (quoting Gilman v. Gilman, 32 Va. App. 104,
115, 526 S.E.2d 763, 768

(2000)). The inevitable "degree of imprecision" noted
in Arbuckle II, 27 Va. App. at 618, 500

S.E.2d at 288, therefore, cuts both ways. It affords the
chancellor wide latitude to determine the

weight of the subsection E(9) "tax consequences"
factor standing alone as well as the strength of

that particular factor when put into the larger context of all
of the other statutory factors that

must be considered.

Given these principles, we reject husband’s argument that the
trial court abused its

discretion by failing to adjust the equitable distribution award
to take into account husband’s

potential capital gains tax liability. The chancellor considered
extensive testimony from the

parties and their witnesses, heard oral argument both at trial
and at the post-trial hearing on

husband’s motion to reconsider, and reviewed legal memoranda
submitted by counsel. It thus

cannot be said that the trial court failed to consider the
issue.

It is true, as husband contends, that the chancellor assigned
the E(9) factor no measurable

weight in the decisional process — at least in the sense that
he did not reduce the award because

of any potential future tax liabilities. And we agree with
husband that such a decision would be

an abuse of discretion if it reflected the chancellor’s mere
disagreement with the statutory

command to consider tax consequences. A trial court cannot deem
legally insignificant what

Code ? 20-107.3(E) declares to be significant. That said, we
see nothing in the chancellor’s

ruling suggesting that he took this view.[5]
To the contrary, the record reflects that the court

understood the relevance of the E(9) factor but nonetheless
accepted wife’s argument that the

potential tax liability was too conjectural to warrant the
requested adjustment. The chancellor

also reaffirmed that — having considered "all the factors
in this matter," not just E(9) — he

believed the award was "fair and equitable under the
statute." Because nothing in this record

demonstrates that the chancellor abused his discretion in coming
to that decision, we will not

overturn it on appeal.

C. Backing-Out Husband’s Salary[6]

For similar reasons, we reject husband’s argument that the
chancellor erred by not

backing out husband’s salary from the cash-flow model during
the distribution phase of this

case.[7] On this
issue, husband relies exclusively on his expert’s opinion that husband’s job

"would have to be replaced, were the business sold."
Having conceded that this adjustment

presupposed husband would sell his shares, a hypothesis the
trial court rejected as speculative,

husband cannot demonstrate on appeal that the chancellor abused
his discretion in likewise

rejecting the proposed adjustment of the award based on the
husband’s salary.

D. Date of Docketing Judgment

Finally, husband argues that the trial court erred by ordering
that the monetary award

against husband be docketed four months from the date of the
final decree entered on October

30, 2002. We disagree. "A monetary award in an equitable
distribution proceeding is a

judgment." Booth v. Booth, 7 Va. App. 22, 31, 371 S.E.2d
569, 574 (1988). Code

? 20-107.3(D) states that an equitable distribution award
"shall constitute a judgment within the

meaning of ? 8.01-426 and shall not be docketed by the clerk
unless the decree so directs." The

date chosen by the chancellor for docketing the judgment lies
within his sound discretion.

In this case, we see no basis for concluding that the four-month
period provided by the

trial court in its final decree constitutes an abuse of
discretion. Husband presented no evidence

of any inability to use his substantial assets as collateral for
financing the cash award, either

through his two companies or through institutional lenders.
Though the trial court recognized it

would not be "easy" for husband to pay the award, the
court pointed out that he "received

considerable assets in this distribution" and offered no
persuasive reasons for delaying the

imposition of his cash award liability beyond the docketing date
chosen by the court.

IV.

Because the trial court’s equitable distribution order in this
case conforms to governing

legal principles and involves decisions within the court’s
sound discretion, we affirm.

Affirmed.

 

FOOTNOTES:

[1]The parties do
not dispute on appeal any aspect of the valuation or distribution of the

stock shares in J&E Leasing L.L.C.

 

[2]"Derivative
suits play an important role in protecting shareholders of corporations from

the designing schemes and wiles of insiders who are willing to
betray their company’s interests

in order to enrich themselves." Simmons v. Miller, 261 Va.
561, 573, 544 S.E.2d 666, 674

(2001) (internal quotation marks and citation omitted).

 

[3]See, e.g.,
Rowe v. Rowe, 33 Va. App. 250, 266, 532 S.E.2d 908, 916 (2000) (noting

that "deflated values" had been used because "the
stock was discounted due to generally limited

marketability of stock in a closely-held corporation");
Ellington v. Ellington, 8 Va. App. 48, 57,

378 S.E.2d 626, 631 (1989) (approving chancellor’s rejection
of an unspecified "discount factor

for lack of marketability of the husband’s minority
interest"); Zipf v. Zipf, 8 Va. App. 387, 395,

382 S.E.2d 263, 268 (1989) (discussing "discount for lack
of marketability" of closely held

shares).

 

[4]Moreover,
under husband’s approach, the difference between selling all shares and

some shares could be significant. The requested one-third
discount, when applied to all of

husband’s shares, would be a $145,074 reduction. If applied
only to a portion (say, for example,

25% of his shares), the reduction would be only $36,268. To make
matters worse, the

calculation involves a moving target. The need for liquidity to
pay a cash award depends on the

total amount awarded. That amount, of course, depends in part on
the size of the discount.

Having addressed none of these contingencies and offered no
reliable prediction of how many

shares (if any) would need to be sold, husband further diluted
the persuasiveness of his position

in the trial court.

 

[5]The trial
court’s decision overruling wife’s objection to husband’s
cross-examination of

her expert on potential tax liabilities demonstrates the court’s
appreciation for its task under

Code ? 20-107.3(E)(9): "I’m going to allow it. I
understand that it cannot be used for valuation

of the asset, I understand that, but I think that it’s fair
ground to ask an accountant the tax

consequences because the Code requires the Court to consider it
for purposes of equitable

distribution and, certainly, I can ferret out the difference
between the tax consequences in that

realm and for the valuation of the property, so I’m going to
allow it."

 

[6]On appeal,
husband does not challenge the trial court’s failure to back out of the

cash-flow valuation model the portion of his brother’s salary.
As a result, husband has waived

any challenge to this omission as inconsistent with the
intrinsic value approach or generally

accepted accounting principles.

 

[7]Husband
concedes that he has "no objection to the valuation of the assets,"
only the

manner of their distribution. For this reason, we do not address
whether husband’s salary should

have been included in the cash-flow model during the valuation
stage. See generally Gary N.

Skoloff, et al., 3 Valuation and Distribution of Marital
Property ? 22.08[3][a], at 22-93 (2003);

Burnham-Steptoe v. Steptoe, 755 So. 2d 1225, 1235 (Miss. Ct.
App. 1999) (en banc). Similarly,

husband does not argue — and we do not address — whether
inclusion of his salary in the

valuation model unfairly duplicated his income for purposes of
establishing child support. See

Shannon Pratt, The Lawyer’s Business Valuation Handbook 348-49
(2000) (The problem of

"double dipping" can be "avoided if the valuation
methodology truly follows the philosophy of

not being dependent on future efforts (or restrictions on
efforts) of the operating spouse.").


Scroll To Top