Crismon v. Crismon , 72 Ark. App. 116 ( 2000 )

K. MaxKoonce, II, Judge.

This is an appeal of an order addressing property division in a divorce. The issues on appeal concern the Chancellor’s application of a “fair market value” standard for valuing the parties’ interest in an ongoing business, and the Chancellor’s interpretation of certain terms in a property settlement agreement.

We find no reversible error on either point and, therefore, affirm. The parties to this case were divorced on September 15, 1996. A property settlement agreement was entered at the time of the divorce. At issue is the valuation of the appellee’s business, consisting of a partnership with his “good friend,” Larry Garland, in two convenience stores and certain commercial property. During the pendency of the divorce, the appellee’s fifty-percent stake in the partnership was valued from $462,000 to $829,000 according to a September 1997, financial statement. Earlier personal financial statements prepared by appellee valued his interest at $320,000 on July 16, 1992, $355,000 on October 26, 1993, and $682,000 on October 23, 1997. The appellant attempted to become a partner in the business (pursuant to the property settlement, where she took over all interest in the convenience stores, and the husband retained all interest in his own pension accounts), but Garland refused. The appellant then filed for relief from the court in the form of a Petition for Determination of Bights and Valuation of Property, seeking one-half of the appellee’s partnership interest (and one-half of his pension plan), and seeking to enforce annual income guarantees and distribution of the appellee’s bonus. In the Decree of Divorce, a bonus of $7,500 was anticipated, and was ordered to be given entirely to Mrs. Crismon.

At trial, the appellee’s partner, Larry Garland, testified that the fair market value of the entire partnership was $350,000 based on his experience and numerous uncertainties inherent in the business. The appellant’s expert testified that under a “fair value” standard, the partnership was worth in excess of $1 million, and the appellee’s partnership interest was worth $555,000. The expert then applied a “reasonable marketability discount” of ten-percent, for a final valuation of the appellee’s interest at $500,000. The appellant’s expert did not include any discount in her written report. The appellee’s expert valued a fifty-percent stake in the partnership at $286,000 based on a cash flow discount rate of fifteen-percent and a marketability discount of twenty-five percent. The court ruled that the value of the property was $365,000 using a twelve-percent discount rate.

In its written order, the court awarded the appellant $182,500, representing one-half of the court’s valuation of the partnership interest in the Garland-Crismon business.¹ The court also found that the bonus in dispute had already been distributed, and denied any further relief on that point, or on the issue of the “guaranteed salary” promised in the property setdement. From that order comes this appeal, with appellant arguing for reversal on two points: 1) the court erred in applying a discount in its valuation of the Garland-Crismon partnership, and 2) the court erred as a matter of law in its interpretation of the property settlement.

Chancery cases are reviewed de novo, and the chancellor’s findings will not be disturbed unless they are clearly erroneous or clearly against the preponderance of the evidence. O’Neal v. O’Neal, 55 Ark. App. 57, 929 S.W.2d 725 (1996).

Here, after hearing conflicting expert testimony on the value of the appellee’s interest in the partnership, the chancellor made a finding of fact that the value of the partnership was $365,000 based on a fair market value standard. It is the province of the trier of fact to determine the credibility of witnesses and resolve conflicting testimony. Shoptaw v. Shoptaw, 27 Ark. App. 140, 767 S.W.2d 534 (1987). While there is conflicting argument on whether a “fair value” standard should be borrowed from other jurisdictions’ case law on shareholder suits, the Arkansas Supreme Court has explicitly approved the use of the “fair market value” standard for valuing closely held businesses in a marital property division context. See Layman v. Layman, 300 Ark. 583, 780 S.W.2d 560 (1989) and Skokos v. Skokos, 333 Ark. 396, 968 S.W.2d 26 (1998). Further, the term “fair market value” is used in the marital property statute at Ark. Code Ann. § 9-12-315 (a)(4) (Repl.1999). Based on these authorities, the chancellor’s use of a “fair market value” standard is not clearly erroneous.

Implicit in the appellant’s first allegation of error is whether the trial court erred in applying the “marketability discount” in the valuation calculation. The appellant argues that controlling Arkansas case law supports her position and directs this court’s attention to Jones v. Jones, 29 Ark. App. 133, 777 S.W.2d 873 (1989). In Jones, this court refused to accept a thirty-two percent reduction in the value of an accounting firm that was based on the firm losing roughly one-third of its customers if one of its partners was forced to sell his interest. Additionally, our court held that there was no evidence that the firm was contemplating selling the one-third interest, and therefore the value of the firm should not be reduced. We also rejected a $6,000 “rounding down” of the estimated value. In the Jones decision our court did not specifically reject applying a “marketability” discount to marital property divisions of businesses, but found that the justification for the discount (based on a buy-sell agreement among the partners and the anticipated loss of business if a partner left) was not appropriate under the facts of that case. In the present case, the discount(s) in dispute do not purport to represent future lost business, as in Jones, but reflect expenses that would be incurred in marketing and selling the partnership interest. Further, pursuant to our de novo review, we did not reverse in the Jones case, but simply modified the chancellor’s valuations, and affirmed as modified. Id.

Finally, the appellant takes issue with the application of two provisions in the settlement agreement. First, the appellant argues that the court erred in failing to award her $7,500 for the appellee’s bonus as stated in the decree. The appellee stated in pleadings that he paid $5,400 to appellant, representing the entire bonus paid to him (with the remaining twenty-eight percent being withheld by his employer for taxes). This issue was not addressed in any abstracted testimony from the trial. Without any conflicting proof, it is impossible to say that the trial court erred in accepting that all amounts due to the appellant for the bonus as contemplated in the original decree had been paid.

The second prong of the appellant’s second point on appeal involves the trial court’s application of language in the property settlement regarding a “guarantee” of an annual income for appellant of $45,000 from a salary from the partnership and from alimony. However, the same paragraph with the “guarantee” language also includes the following: “In no event shall Husband’s annual obligation for alimony exceed $31,000.” The evidence at trial showed that the appellee had fully complied with his alimony obligation, but that the appellant had not received any salary from the partnership because Garland refused to admit her to the partnership. The appellant argues for a “fair- and reasonable” interpretation of the contract “guarantee” and asked the court to order the appellee to make up the difference between the alimony paid and the $45,000 per year “guaranteed.” While such a construction may have been equitable under the circumstances, it is not mandated under the property settlement, and is in fact contrary to the explicit maximum cap on the appellee’s alimony; therefore, the trial court’s refusal to award the requested relief is not erroneous.

Accordingly, we affirm on both points.

Robbins, C.J., Bird, Stroud, and Neal, JJ., agree. GRIFFEN concurs in part, and dissents in part.

1 The court also ordered that the appellant would receive one-half of the appellee’s pension, but that determination is not in dispute in this appeal.