Opinion
December 29, 2010.
Appeal from the Circuit Court of Roanoke County — CL08-342.
AGREEMENTS AND STIPULATIONS
In contemplation of their equitable distribution hearing, the parties stipulated as to what assets would be classified as marital property and the value of most of those assets. Since that time funds have been released from certain accounts and marital property has been sold, however, agreed orders and stipulations were entered to deal with these changes in asset values. The final values of the stipulated marital assets are reflected in Joint Exhibit #1, dated March 10, 2010. Husband and Wife also agreed that all of their marital property would be divided equally.
WIFES BUSINESS
The only disputed issue with regard to agreed marital assets is the value of a closely held corporation known as MRN Associates, LLC. It is a business that opened during the course of the marriage and is titled solely in Wife's name. It is designed to facilitate Wife's work as a specialized registered nurse who assists patients receiving workmen's compensation to rapidly return to work. The parties disagree as to the overall value of that business, its classification, and how it should be divided. Both Husband and Wife had experts testify as to their opinion of the value of the business. Husband's expert valued the company at $490,000, all of which he attributed to commercial goodwill and classified as marital property. Wife's expert valued the company at $347,000. Wife's expert attributes a substantial portion of this value to personal goodwill and fixed the value of the marital portion of the business at its adjusted book value of $23,072.
Both experts testimony places substantial value of the company in its goodwill. Business goodwill can have two components. Individual goodwill is attributable to the individual and is categorized as separate property in a divorce action. Commercial goodwill is attributable to the business entity and may be classified as marital property. Howell v. Howell, 31 Va. App. 332, 344 (2000). Husband argues that the entire value of the business is commercial goodwill and is attributable to the business entity alone, and not to the personality, reputation and expertise of Wife. Using his theory, the business should be divided equally based on its value that includes its commercial goodwill. His one-half share of the business would then amount to $245,000.00. Wife argues that all of the goodwill is individual goodwill. This argument results in a division of the business based on the net value of its assets, less liabilities, with no goodwill included. Under her theory each party would receive $11,536.00 as one half of the adjusted book value of the company.
Based on the testimony of the parties and their experts, the Court finds Wife's valuation more credible. Husband's expert valued the company without meeting with Wife, the company's sole owner and employee. He based his valuation on incomplete financial records kept by Husband and on statements contained in a website that generated very little business and ultimately had very little to do with the company. Wife's expert based his valuation of the company on financial records prepared by a CPA and several interviews with Wife about the inter-workings of the company. Wife's expert's opinion as to valuation, working with actual rather than speculative facts, was more believable. Therefore, the Court finds that MRN Associates, LLC is worth $347,000. Of that amount $23,072 is marital property. The remaining $323,928 is individual goodwill and will be categorized as Wife's separate property. See Howell, supra. There is no commercial goodwill in MRN Associates, LLC. It is all individual goodwill attributed to Wife's personality, reputation and expertise. The marital property portion of the business will be divided equally between the parties. Wife can purchase Husband's interest in the business by paying him the sum of $11,536.00.
POST SEPARATION IRA ACCOUNT
The only disputed classification issue deals with Husband's claim of a marital interest in Wife's Protective Annuity IRA account. He argues simply that she failed to prove that it was her separate property. Husband's argument overlooks Wife's evidence regarding tab 9 of her Exhibit #1, dated November 10, 2010. In that exhibit Wife shows that all of those funds, amounting to slightly over $30,000.00, came from her post separation earnings. The account itself was established after separation. It is all Wife's separate property.
NOTE PAYMENTS
Since the parties separated, Wife has been paying the mortgage and equity line debt on the marital home in which Husband resides. That was ordered, not as a spousal support payment, but to maintain the marital asset pending equitable distribution. While Wife is entitled to credit for the equity increase in the home that accrued in the period between the parties separation and the final decree of divorce under Raiello v. Raiello, 2001 Va. App. LEXIS 416, (2001), no evidence was presented as to that increase. The Court could not independently determine the increased value, if any, based on the evidence. Accordingly, no credit is given Wife for her post separation house payments.
The final decree of divorce was entered on January 4, 2010. At that time their tenancy by the entirety ownership in the marital home changed. Thereafter, they each owned a one-half undivided interest in it as tenants in common. See § 20-111, Code of Virginia (1950), as amended. The central characteristic of a tenancy in common is that each tenant owns by himself, with most of the attributes of individual ownership, a physical undivided equal share of the entire parcel. Each co-tenant is ratably responsible for taxes and other liens against the property. Jenkins v. Jenkins, 211 Va. 797, 800 (1971). Having made all of the note payments on the former joint marital residence since the entry of the final divorce decree as a co-tenant in common with Husband, Wife is entitled to contribution from Husband for his one half of that debt. That will be credited to Wife from Husband's share of the marital residence.
Neither party expressed an interest in purchasing the other's interest in the marital residence, however, if either does so request, they may do so by refinancing the debt and paying the other his or her one half equity interest subject to the above credit. If neither desires to purchase the home, it should be placed on the market for sale in the most commercially reasonable manner with the proceeds divided subject to the above credit. Pending sale Wife shall continue to make the monthly note payments as previously ordered.
Counsel for Wife should prepare an appropriate order for equitable distribution, incorporating this letter opinion by reference, and present it for entry after first obtaining endorsement of counsel. The remaining issues of spousal support and attorney fees should be scheduled for a hearing.