Equitable Distribution


The Pennsylvania Superior Court in an equitable distribution case ruled that the trial court did not err in adopting wife’s experts’ methodology in evaluating the parties’ transport business; however the court did err in failing to consider evidence related to the potential sale of the business before assigning the asset to husband.

The parties were married in 1986. During the marriage, husband founded Brothers Auto Transport, a company that picks up new and used vehicles and transports them through the country. The parties separated on Feb. 5, 2010. As of that date, Brothers was a thriving business with average gross sales of about $9 million each year. Wife did not work due to her health. After separation, husband was ordered to pay wife $4,942 each month in alimony pendente lite. The major dispute in the equitable distribution proceedings was the valuation of the trucking business. Each party retained two separate experts. A divorce master found wife’s valuation experts credible and her proposed valuation reliable, though the master never explicitly stated the valuation he adopted. The trial court adopted the master’s recommendation to use wife’s proposed valuation and valued Brothers at $3,336,134. On appeal, the appellate court found the trial court’s valuation was not supported by the record and, therefore, remanded. Upon remand, the trial court found wife’s valuation experts most credible and, therefore, adopted their valuation of Brothers at $1,978,328. On this appeal, husband challenged the trial court’s decision to adopt wife’s valuation experts’ methods.

He claimed his experts provide a more accurate valuation of the business by using an income-based methodology. Wife’s experts used an asset-based methodology, i.e., a subjective methodology that did not assess the fair market value of the business, according to husband. The Divorce Code does not set forth a specific method for valuing assets, the court noted. Moreover, the trial court is afforded great discretion in fashioning an equitable distribution order which achieves economic justice. The trial court is free to accept all, part, or none of the evidence as to the true and correct value of the property. Husband argued that the trial court should have viewed his experts’ testimony in utilizing an income-based valuation as the preferred valuation. “We decline to adopt this protocol as the exclusive method for determining business valuation,” the court stated, while reiterating that trial courts should be given great discretion to evaluate the parties’ valuation methods and determine which is most credible. However, the court agreed with husband’s assertion that the trial court committed an error of law in failing to consider the tax effect of awarding the business solely to husband. The Divorce Code identifies 11 relevant factors in an equitable distribution analysis, including the tax ramifications and expenses associated with the sale of each marital asset. While husband was to receive the entire business, that business could not be converted to cash without incurring significant tax liabilities and expenses associated with the sale, the court observed. Meanwhile, wife was to receive monthly cash payments without any similar expenses. The court thus found that the trial court erred in failing to consider evidence related to the potential sale of the business before assigning the asset to husband.

Reference: Carney v. Carney, PICS No. 17-1181, (Pa. Super. July 11, 2017), Digest of Recent Opinions, Pennsylvania Law Weekly, 40 PLW 726, August 8, 2017

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