Miller v. Miller, S10A1707

*All courts mentioned are at the state level.

• Parties divorced in 2009, decree determined alimony, custody, child support, but reserved fees.
• Found parties’ real property (marital residence and Amelia Island lot) to be marital, and profits from sales would be equally divided.
• Trial court accepted Wife’s expert’s valuation of Husband’s medical practice, which used combination of Asset, Market, and Income approaches.
• Trial court awarded Wife ¼ of Husband’s medical practice, payable in 24 monthly “business alimony” installments.
• Wife filed motion for contempt. Trial court awarded Wife attorney’s fees and found Husband in contempt.

Asset, Income, and Market approach to valuation.  Supreme Court found:

• No one best way to value a professional practice.  Can use multiple methods.
• Expert weighs each approach differently based on the specific business at issue (“an art rather than a science”).
• Facts upon which expert bases his/her opinion are admissible. Trial court/fact finder determines weight given to valuation technique(s) used by expert.
• Here, Expert used all 3 approaches, weighing each one differently.  Expert capitalized “excess earnings” in the Asset approach, and capitalized “total earnings” in the Income approach.

Husband claimed using Market approach inappropriate, as there is no market for solo medical practices.  Supreme Court found that:

• Testimony of Husband’s witnesses stating that there was no market for solo practices was contradicted by Wife’s expert, who used two national databases – a generally accepted method of valuing medical practices.

• Differences in location and dates of sale for comparisons go to weight, not admissibility.

Husband contended that capitalization of excess earnings was error because he paid himself a normal salary which left no excess earnings.  Supreme Court found that:

• Capitalization of excess earnings is the most common method for valuing professional practices.

• To value practice’s intangible assets, deduct owner’s reasonable salary from average net income of the practice, NOT from the actual salary paid to the owner.
• This adjusts for practices that increase/decrease retained earnings through owner’s salary.  That the practitioner is paid a normal salary does not mean there are no excess earnings.
• Capitalizing excess earnings is appropriate because it provides the present value of the business and avoids valuing post-divorce earnings and profits.
• Here, Expert properly made modifications for taxation as S corp, individual goodwill, excluded annual income from reasonable compensation for services, and capitalized actual past earnings instead of estimated future earnings based on future growth rate.

Husband claimed his income was counted twice by awarding portions of his business in both the Alimony/Child Support awards and Property Division award (which the trial court called “business alimony”).  Supreme Court found:

• There was no double dipping because Expert took this into account.

• Trial court used both Husband’s salary and business income in child support worksheets.
• Gross income includes income that was considered in placing a value on a business that was the subject of equitable division.
• For Child Support as between a parent and child, the asset subject to property division is not being counted twice.

Goodwill

Husband claimed “professional goodwill” cannot be divided as marital property.

Two types of goodwill:

• Enterprise (commercial) goodwill (transferable & included in valuation)
• Individual (personal) goodwill (nontransferable, cases divided as to whether it is included in valuation)
• “Professional goodwill” as used by Husband is ambiguous.  If he means Enterprise, it can be used in valuation of practice as part of marital property.  If he means Individual, Wife’s Expert excluded individual goodwill from valuation of practice.  [Individual goodwill NOT marital for purposes of this opinion only.]

Key Person Discount – One method of quantifying personal goodwill.

Wife’s expert stated Key Person Discount not applicable because Husband could be replaced by another doctor, and any patient attrition was taken into account by use of Market approach (where a Key Person Discount is already adjusted for in the purchase price of comparable practices) and higher capitalization rate in the other methods (as a means of reflecting risk that some patients would leave).  An additional Key Person Discount on top of this would count personal goodwill twice.

Trial court’s label of “Business Alimony” not controlling. Award, which stated number of payments, gross amount paid, and had no contingencies, was a property settlement.

Source of Funds

Husband contended the source of funds for the marital residence and Amelia Island lot was a “prior residence” purchased with premarital funds prior to marriage.  Supreme Court found the “prior residence” was transformed into marital property where:

• “Prior residence” was deeded in both parties’ names after the marriage, and
• Wife testified that the purpose thereof was to give her ownership because of her contribution to the household.

Husband argued that down payment on marital residence was made with business funds that were then replaced by proceeds of sale of “prior residence.”  Trial court properly concluded Husband did not use his own personal funds for down payment on marital residence, and Husband actually conveyed marital residence to both parties on the day it was purchased, where:

• Both parties were sellers of “prior residence;”

• Proceeds from “prior residence” were deposited into parties’ joint account, and NOT a business account, and
• Proceeds from “prior residence” comingled with funds in parties’ joint account.

Parties borrowed against the equity in the marital residence to purchase the Amelia Island lot.  Since marital residence determined to be joint marital property, so was Amelia lot.

Criminal Contempt

Supreme Court reversed trial court’s finding where:

• Evidence was seven instances where Husband asserted his privilege in response to questions at contempt hearing.
• Adverse inferences from Husband’s invocation of privilege formed sole evidentiary basis for criminal contempt finding by trial court.
• In a civil case, court can draw adverse inference against witness who asserts privilege, but no inference of guilt can be drawn from privileged refusal to testify in a criminal case.  Criminal contempt is a crime requiring proof of elements beyond a reasonable doubt.