Tennessee Divorce Value for Plastic Surgeon Raises Some Disturbing Questions
Chase v. Chase, 2022 Tenn. App. LEXIS 478 (Dec. 9, 2022)
In this Tennessee appellate divorce decision, the court affirmed the valuation of the husband’s plastic surgeon practice from the trial court. The appellate court made it very clear that the trial court considered all relevant evidence to determine its value of the practice and that consideration of some entity goodwill was appropriate in this case. As a result, the appellate court affirmed the value of the practice at $255,000. The wife’s expert had determined a value of $350,000 using fully the capitalized cash flow method while the husband’s expert arrived at a value of $110,000, 90% based on the adjusted net asset method and 10% on the capitalization of earnings method.
Both experts, then, recognized some value in excess of the adjusted net asset method. That the trial court arrived at a value of $255,000, a value in between the values of the two experts, indicated clearly that it and the appellate court firmly believed that some entity goodwill was appropriate in this case. What was missing in the opinion and in the evidence presented was any indication of how much entity goodwill existed in the practice. Interestingly, the husband’s expert expressed her opinion that the practice would have only personal goodwill and that no entity goodwill would exist. Yet she included some goodwill in the opinion she gave to the court for the value for the practice. In any event, the trial court and the appellate court seemed to agree that some entity goodwill did exist, and it should be included in the value for equitable distribution.
Looking at the evidence gleaned from the appellate court opinion, the husband’s expert included some goodwill value (10% of her opinion was under the capitalized cash flow method) while testifying that “it was possible that any goodwill associated with APRS did not fall ‘neatly’ into the box of either enterprise or personal goodwill, acknowledging that APRS could maintain a mixture of both.” She did not, however, offer an opinion as to the breakdown between entity and personal goodwill. The wife’s expert admitted that he had not done an analysis on personal versus entity goodwill. Thus, his opinion included all goodwill, whether personal or not.
Once again, this was a case where failure to provide an analysis and an opinion of the amount of goodwill that was personal and the amount that was entity had allowed the courts to step in and provide their own value of a business without having to explain whether consideration of personal or entity goodwill was made. Regardless of prior or current case law in a state on the matter of personal versus entity goodwill, it was a good idea for an expert to provide such an analysis and opinion for the court.
The decision also raised another issue. In the trial court opinion, the court listed as one of the reasons for giving more credibility to the wife’s expert over the husband’s expert that the wife’s expert “is more experienced.” The amount of experience certainly can provide some weight, but it was not de facto a reason for determining the credibility of the witness. Had the trial court judge looked more closely at the witnesses in this case, it appeared that, while in total years, the wife’s expert had more experience, his experience had been centered more in the area of economic damages than in valuation.
The case digest along with the full court opinion is available in the BVLaw database.