Moore v. Moore ( 2015 )

THE STATE OF SOUTH CAROLINA
In The Supreme Court
Whitney L. Moore, Appellant/Respondent,
v.
Arthur R. Moore, III, Respondent/Appellant.
Appellate Case No. 2013-001359
Appeal from Charleston County
Vicki J. Snelgrove, Family Court Judge
Opinion No. 27579
Heard February 5, 2015 – Filed October 7, 2015
AFFIRMED IN PART, REVERSED IN PART
Timothy E. Madden and Reid T. Sherard, both of Nelson
Mullins Riley & Scarborough, LLP, of Greenville for
Appellant/Respondent.
Donald B. Clark and Margaret D. Fabri, both of
Charleston for Respondent/Appellant.
JUSTICE KITTREDGE: This domestic relations matter comes before us on
cross-appeals from Whitney Moore (Wife) and Arthur Moore, III, (Husband) from
an order of the family court valuing and dividing the parties' closely held business,
Candelabra. We affirm the family court's inclusion of Wife's enterprise goodwill
in the business as marital property. We, however, modify the valuation and
equitable division award, and for the reasons explained below, we direct Wife to
pay to Husband the sum of $338,525, together with interest at the rate directed by
the family court, calculated from the date of the family court final order, within
ninety days of the sending of the remittitur to the family court pursuant to Rule
221, SCACR. We reverse the award to Husband of $122,557 in expert witness
fees.
I.
In appeals from the family court, this Court reviews factual and legal issues de
novo. Simmons v. Simmons, 392 S.C. 412, 414–415, 709 S.E.2d 666, 667 (2011).
Thus, this Court has jurisdiction to find facts in accordance with its own view of
the preponderance of the evidence. This broad scope of review, however, does not
require the Court to disregard the findings of the family court, which is in a
superior position to make credibility determinations. Lewis v. Lewis, 392 S.C. 381,
385, 709 S.E.2d 650, 651–52 (2011). We have carefully reviewed the
approximately 3500-page record, and we commend the excellent family court
judge for her thoughtful handling of this contentious and difficult case.
II.
A.
The parties met and began dating when they were living in Charlotte, North
Carolina. They were married on June 9, 2001, and lived throughout the marriage
in Charleston County, South Carolina. Two children were born of the marriage.
The parties separated in March 2011.
Wife graduated from the University of North Carolina at Greensboro in the early
1990s with a four-year degree in textile products marketing and a minor in
business. Upon graduation, Wife was employed with Belk department store in its
two-year executive training program, which she described as "kind of extended
schooling," through which she learned the "ins and outs of retailing" and
"shadow[ed] everybody from the bottom to the top."
In the five years following the Belk executive training program, Wife held various
positions within the Belk company, including area sales manager, assistant buyer, a
position with the payroll and productivity department, and a "co-op" position
through which Wife was employed by both Belk and clothing vendor Tommy
Hilfiger. Wife testified that during her employment with Belk and Tommy
Hilfiger, her responsibilities involved scheduling/staffing; budgeting; managing
sales, costs, and shrinkage; creating purchase orders; building and enhancing
working relationships with vendors; selecting product from various lines and
vendors; determining the amount of product needed at various stores; conducting
sales and product merchandising seminars throughout a ten-store area; and
assisting with the development of a special productivity initiative designed to more
effectively manage staffing costs and enable further reductions in product pricing.
Husband studied corporate communications at the College of Charleston, where he
also played baseball. After college, he was drafted to be a pitcher for the Florida
Marlins in 1995, but injuries early on foreclosed the opportunity for a major league
career. Thereafter, Husband "took a little break" and worked for a golf facility on
Hilton Head Island for a few months before taking a sales position with Alltel
Communications in Charlotte.
B.
After the parties met in Charlotte and began dating, Husband accepted a position
selling medical supplies to nursing homes and prisons for Neighborcare, which
required him to relocate to Charleston. Wife followed Husband to Charleston in
late 1999 and briefly held a commission-only position selling fashion eyewear to
optometrists throughout South Carolina before opening her own lighting and
design business in April 2001, just before the parties married.1 Throughout his
tenure at Neighborcare, Husband traveled frequently throughout the state and
earned $170,000 to $185,000 per year. Wife drew some money out of Candelabra
in the early years to contribute to household expenses, but it was Husband who
paid the bulk of the household expenses.
Candelabra is a retail business located on Coleman Boulevard in Mount Pleasant
that sells trendy, high-end boutique lighting, home furnishings, and home
accessories in a retail showroom. Within the last several years, a growing
percentage of Candelabra's business has come from a developing base of internet
sales. Candelabra does not manufacture any products; rather, it sells products
manufactured by various vendors on a non-exclusive basis.
Candelabra is a registered S-Corp, with 51% of the stock titled in Wife's name and
49% titled in Husband's name. From the beginning, Wife has served as the
1
Wife initially opened the store under the name of Katyna Lighting and Design in
partnership with a former friend. When that partnership dissolved, Wife continued
in business and changed the name to Candelabra.
President of Candelabra and has been responsible for overseeing all business
operations: financial forecasting and management, budgeting, hiring, scheduling,
training, merchandising, and most importantly, selecting and displaying all of the
products. By all accounts, Wife is an experienced, successful businesswoman with
an exceptional "eye for design," a knack for selecting specific products that appeal
to her customers and consistently generate sales, and the ability to create long­
term, positive relationships with vendor and manufacturer representatives.2
C.
When Candelabra first opened in 2001, the Charleston housing market was
experiencing a boom, and Wife was able to grow the business by establishing
relationships with lighting vendors and with various subcontractors, particularly
those working in the I'On development in Mount Pleasant, who continued to do
business with Candelabra after completion of the I'On development.
As sales continued to grow, Wife determined that Elizabeth Goff, a key
Candelabra employee, should be dedicated exclusively to builder and contractor
sales. In the early years of Candelabra's existence, Wife's growth strategy was to
continue to nurture the existing contractor relationships, primarily through Goff,
while also establishing new relationships with other contractors and interior
designers, and expanding Candelabra's product offerings to include more than just
lighting. At that time, internet retailing was not well-established among small
businesses, so there was no internet component to Candelabra's business.
Although Husband had held the title of Candelabra's Vice President since the time
of incorporation, other than assisting Wife in preparing the store for the grand
opening and intermittently serving as the "muscle" to help move, hang, or deliver
heavier items, Husband was not actively involved in the business prior to 2005.
However, several things occurred in 2005 that impacted Candelabra and the
parties' working arrangements. First, after experiencing four miscarriages, Wife
had become pregnant and was having a difficult pregnancy that, at times, required
her to be on bed rest, thereby reducing the amount of time she was able to spend at
the store. Around the same time, Husband's employer, Neighborcare, was bought
out by another company, and Husband's position was eliminated. Thereafter,
Husband began spending more time at Candelabra such that he considered his
2
In 2007, Candelabra won a prestigious industry award for being the best lighting
store in the southeastern United States. Candelabra was nominated for this same
award in 2012.
work there to be his full-time employment, and he did not seek any other type of
employment.3
In the fall of 2005, while Wife was on maternity leave with the couple's first child,
Husband determined that Wife's strategy aimed at contractor sales was too tedious
and time-consuming, and Husband unilaterally determined that the better sales-
generation strategy would be to pursue large corporations and multi-unit dwellings,
such as the 122-unit Tides Condominium project in Mount Pleasant. Candelabra
eventually landed the Tides project.
Goff had difficulty working for Husband, and she resigned her position at
Candelabra when Wife returned to work from maternity leave. Candelabra lost
business when Goff left and took the contractor business with her. As Wife
testified:
It was bad business to throw away all of our old contractors in lieu of
a one-time deal no matter what it was making us and I knew that. It
didn't mean we shouldn't take it on, [but] we needed to structure it
where we could keep our contractors and keep our other business
flowing and then have somebody who worked the Tides additionally.
....
I've never been in a business where you take the one shot quick fix
fast money deal in lieu of letting go of your constant and consistent
business that you built relationships with because when you nip that
off in the bud and the Tide[s are] gone, you might not have anything
else left because the Tides is a one shot deal. . . . It's nothing you can
really grow your business on if you're not continuing good business
with your other contractors. And when [Husband] came in and talked
3
According to Wife, the couple never had a discussion about what Husband's next
career move would be; rather, "[h]e just started kind of going into Candelabra,"
despite her impression that his career would be continuing in outside sales.
Husband testified that he saw how difficult the pregnancy was for Wife, and
regardless of whether she asked for his help, he decided he would not seek other
employment so he could spend more time helping out at Candelabra.
with [Goff] about giving up contractors and that we weren't going to
go that route anymore, she was dumb founded and she left, and she
took the contractors and we were left with the Tides.4
During this same period of time, the parties were experiencing marital discord as
well. The evidence demonstrates Husband has a violent temper. A particularly
intense disagreement occurred during the spring of 2007, in which Husband
became so angry that he threw a drink glass at Wife, narrowly missing her.
Husband then grabbed the couple's child, who witnessed the incident, and locked
himself and the child in the child's bedroom. As a result of this altercation, the
parties separated for several months but reconciled in September 2007, when Wife
discovered she was pregnant with the couple's second child, who was born in May
2008. Wife returned to Candelabra full-time after her second maternity leave,
assuming all of her previous managerial responsibilities, while also being the
children's primary caregiver.
During 2007, Husband urged Wife to sell Candelabra, attributing the problems in
their relationship to the pressures of running the business. Wife did not want to
sell the business, but she acquiesced, and the business was listed for sale.
Eventually, a buyer agreed to purchase Candelabra with the intent of turning it into
a website business. The agreed-upon purchase price was $1.7 million, which the
parties felt was a "surreal" price given the business was not, in their opinion, worth
that much; however, the buyer backed out and the sale fell through around the fall
of 2008.
By that time, the recession had hit, and the business was seriously struggling.5
Candelabra had a website, but it was very simplistic—providing basic information
about the store and not offering online purchases. Sometime after a discussion
with Wife's father, the parties began aggressively pursuing a website business to
counteract the drop in sales from the downturn in the economy, and Candelabra re­
focused its efforts towards creating a better sales and distribution network via the
internet.
4
Eventually, Husband recognized his poor judgment and attempted to win back the
contractor business Candelabra had lost, to no avail.
5
Candelabra suffered net operating losses of $105,919 and $97,487 in 2008 and
2009 respectively.
D.
Recognizing that online retailing presented a lucrative business opportunity, the
parties began the process of transforming Candelabra's website from one that
offered only information about the physical storefront into one that became the
central feature of Candelabra's business operations. Today, the
www.shopcandelabra.com website allows customers to shop the store's current
products and functions as a portal through which customers may place online
purchases. The website's home page allows users to shop for merchandise by
category (lighting, furniture, home décor, etc.), subcategory (chandeliers, pendants,
lamps, etc.), or by current trends in the lighting and interior design industry.
Because Candelabra's target customer is very brand-oriented, the website also
allows users to sort product by the brands of merchandise Candelabra carries.
Additionally, the parties implemented a robust online marketing campaign to
increase the website's online presence, including search engine optimization (SEO)
techniques, through which the contents of www.shopcandelabra.com are made to
appear particularly relevant to the algorithms of search engines like Google.
Because many customers are drawn to Candelabra's website through the specific
brands, the SEO campaign was implemented one brand at a time and was geared
towards keywords associated with the brand and the best-selling products from
each brand.
E.
Ultimately, this strategy shift proved successful, to the point that as much as 80%
of Candelabra's total sales were generated by the website.6 However, it is from this
point forward that the parties provide vastly different accounts of each of their
contributions toward the creation and implementation of the revamped Candelabra
website. Husband claims the website was his idea, that Wife did not want the
website, that he educated himself on the website creation process and that he had to
drag Wife kicking and screaming into the technological age. According to
Husband, Wife was not a part of the development of Candelabra's website, and the
key to the success of the site is attributable solely to his efforts in hiring key
6
By year-end 2010, Candelabra's net operating income had rebounded to $45,484,
and in the first six months of 2011, Candelabra's net operating income was
$240,306.
personnel and in researching and implementing the SEO campaign to increase
sales through the Candelabra website.
According to Wife, she supported the Candelabra website. In fact, she was the one
who found the first website builder in 2005 through her connections in Greensboro,
North Carolina. And although Husband and a Candelabra employee named
Meredith were the first ones to meet with the second website builder, who
ultimately helped the parties revolutionize the website, Wife testified, and credibly
in our judgment, that she was the decision maker as to the website design and
content:
I was the one that sat down and told [second website builder] this is
what I think we can do. This is what I think is going to be hard.
Nobody is really doing this in the internet right now with high end
design lighting. The designer lighting companies are not getting it
yet. They are not putting minimum price points. We ship this one,
we're not going to make any money. . . . We started talking about it
and weeding it out and what brands we could list and how we were
going to structure it. I showed them my Oly model of what I was
doing. We changed it up . . . mixing in a few other websites that we
liked. I did—I gave them the products. I gave them the words. I
gave them the layout.
We find the evidence supports Wife's contention that her design of the website and
her decision to create different brand "shops" within the website were inspired by
what she learned at Belk and through her experience merchandising clothing.
Wife acknowledged that Husband was in favor of expanding the website and was
very helpful in finding people to get the new and improved website going.
However, Wife stated:
I worked on the website [] more with Meredith and more with the
[outside website] people than [Husband] ever did. [Husband] talked
about it a lot. . . . I will admit he found some key people to help us.
But, physically and anything he did himself to put into that website, it
was all given to him from the companies that we had hired. And, yes,
[] he had helped to find some of the companies. . . . He was reading
books [about building websites] all the time. . . . [H]e would also read
books on the greatest family man and things like that as well. He read
[all sorts of] books all the time. I don't know if he thought when he
read it that that meant he did it. I don't know. But, he read books. I
never saw anything that he ever did in reading books come to fruition.
In terms of the development of the website branding over time, Wife further
testified:
[Husband] would shoot out a lot of ideas, but he wouldn't work on the
ideas. I worked on the ideas. There needed to be timelines. You
grow to[o] fast and you can bottom out. There were things we were
ready for. There were things we weren't ready for. There was only so
much you could do. We couldn't even get the brands that were getting
on [the website] at the time to look decent yet.
So in order to make the site grow right, I had a plan. I had brands that
were going to be coming on. [Husband] wakes up one morning and
decides that there needs to be ten new brands on the website and that's
it. That's a done deal. [Wife], we need ten new brands on the
website.
....
What we didn't agree on is that [Husband] would come to me and say
that we needed to be doing this or that we needed to be doing this, but
then he wouldn't do anything and I had to do it. That's what the
arguments were on. . . . The website is a very good example. He
wanted this great website. There were some people in there that he
put into key positions. And, I struggled to do the website, and the
front of the store, and everything, and kept it up, and yet he would
look at me and say I didn't want the website. But, he wasn't doing
anything on the website.
In short, Wife stated, "If Sam Moore had not been my husband, . . . he would have
been out [of Candelabra] a long time ago because he didn't do enough to acquire
even what a part-time position would do."
In light of our review of the record, we find Husband vastly overstates his
contributions to the implementation and management of the website development
and that Wife is the party with industry knowledge, design background, and work
ethic that brought the website to fruition. Our careful review of the record
convinces us that Husband was a purveyor of ideas, but he left the details of
putting his ideas into action to others with a solid work ethic, such as Wife.
F.
Just as Candelabra's sales began to increase, the parties' marriage was crumbling.
Husband was frequently enraged, hurling vile and profane insults against Wife and
others. After an especially threatening altercation in February of 2011, Wife asked
Husband to leave the marital home.
For a brief period, both parties continued working at Candelabra. However, in
May 2011, Wife, in her capacity as President and controlling shareholder of
Candelabra, terminated Husband's employment. The family court litigation
commenced in June of 2011. Since that time, Husband has had no involvement in
Candelabra's operations by virtue of the family court's temporary order.
III.
The family court granted Wife a divorce on the grounds of one year's continuous
separation and awarded Wife custody of the couple's two children. Neither party
was awarded alimony. The primary matter in dispute was the value of Candelabra7
and the parties' requests for attorney's fees and expert witness fees.
As to the value of Candelabra, both parties presented the testimony of highly
qualified expert witnesses. Wife's valuation expert, Raymond McKay, an attorney
and a certified public accountant, opined that the unadjusted value of Candelabra
as of June 30, 2011, was $1,200,000, of which approximately $846,000
represented goodwill. McKay opined that 20–25% of this goodwill value was
personal to Wife and that without Wife, Candelabra's sales (and profits) would
suffer. McKay also opined that the fair market value of Candelabra was not its full
unadjusted value of $1,200,000; rather, McKay testified that value should be
discounted by 20% to reflect the illiquidity or lack of marketability of shares of a
closely held business such as Candelabra. Accordingly, McKay's ultimate opinion
7
It is undisputed that Candelabra had fixed assets of $353,687 when marital
litigation was filed. During the pendency of the appeal, and over Wife's objection,
we granted Husband's motion for a disbursement of funds. We ordered Wife to
pay Husband the sum of $176,843.50, to be credited against his share of the marital
estate.
was that the adjusted fair market value of Candelabra was $960,000 as of June 30,
2011.
By contrast, Husband's valuation expert, Dr. Perry Woodside, valued Candelabra at
$2,960,000 as of June 30, 2012—a date approximately one year after the marital
litigation was commenced. Woodside did not calculate personal goodwill as part
of his valuation, but conceded on cross-examination that some of the goodwill was
personal to Wife, opining that Wife's personal goodwill was perhaps between 5–
10%. Woodside also opined that Candelabra could be sold "fairly readily" so he
did not believe it was appropriate to apply a lack of marketability discount.
Relying exclusively on the testimony of Husband's valuation expert, Woodside, the
family court utilized a valuation date approximately one year after the
commencement of marital litigation and found the value of Candelabra as of June
30, 2012, was $2,960,000, the majority of which was comprised of enterprise
goodwill. Specifically, the family court determined that, of the company's overall
goodwill, 10% represented Wife's personal goodwill, and as a result that
percentage was excluded from the marital estate. The remaining 90%, excluding
the fixed assets, constituted enterprise goodwill and was included in the marital
estate, for it inhered to the business itself and was unrelated to the individual
efforts of any single person.
The family court ordered an equal division of marital assets. The family court
granted Wife first option to purchase Husband's interest in Candelabra, including a
five-year period to pay Husband his share, together with interest. The family court
further ordered Wife to pay Husband $122,557 in expert witness fees.
Both parties appealed. We certified the appeal pursuant to Rule 204, SCACR.
IV.
Wife contends the family court erred in including any goodwill in the value of
Candelabra and in awarding Husband $122,557 in expert witness fees. Husband
asserts error in the family court allocating any part of the value of Candelabra to
Wife's personal goodwill. Husband further claims the family court erred in
allowing Wife a five-year period to pay his equitable division share. While
substantial valuation questions are presented, the threshold issue is whether and to
what extent the enterprise goodwill of Candelabra is a marital asset.
Courts throughout the country, including this Court, have struggled in how to
resolve the issue of goodwill value in the domestic relations arena. The family
court seeks to achieve equity, yet in the quest for fairness, real world valuation
principles are often and purposely ignored. The familiar tension between a family
court's goal of equity and recognized valuation principles may be explained, at
least in part, due to the absence of a true willing buyer and willing seller in marital
litigation. The reality in a family court action is that there is rarely a true sale, for
one spouse typically retains the business interest which is the subject of the
goodwill valuation and apportionment dispute. Another factor at play is the clear
intent not to include future earnings as part of an equitable division award and also
order an award of alimony based on those same earnings—in essence, to prevent
the inequity of a double recovery. In this regard, one of the common methods of
valuing goodwill is by a capitalization of earnings. The various factors and
concerns explain South Carolina's categorical rule against the inclusion of personal
goodwill in the marital estate. For the first time, we are asked whether enterprise
goodwill can be a marital asset subject to division. While we ultimately answer the
question in the affirmative, we do so cautiously, knowing that today's decision
does not and could not possibly answer the myriad questions that will arise.
A. Goodwill: Personal vs. Enterprise
At trial, the experts agreed that the fair market value of Candelabra's tangible
assets as of June 2011 was $353,687. However, the goodwill value of Candelabra,
the value above and beyond its tangible assets, was the primary dispute at trial.
In a divorce action, the family court is tasked with identifying, valuing, and
apportioning the marital estate. Gardner v. Gardner, 368 S.C. 134, 136, 628
S.E.2d 37, 38 (2006) (citing Johnson v. Johnson, 296 S.C. 289, 293, 372 S.E.2d
107, 110 (Ct. App. 1988)); see also S.C. Code Ann. §§ 20-3-620 to -630 (2014)
(defining marital property and setting forth the apportionment factors).
"The unanimous nationwide rule is that a[] [spouse's] ownership interest in a
marketable business constitutes property which is subject to classification and
division upon divorce." 2 Equit. Distrib. of Property, 3d § 6:72. "The reason is
fundamentally simple: the business can be sold for monetary consideration on the
open market. . . . [I]ndeed, there are essentially no rights which are transferable for
consideration and which do not constitute property." Id.
When marketable businesses are bought and sold upon the open
market, the actual negotiated price for the conveyance is often greater
than the total value of the tangible assets of the business involved.
This difference is due to the fact that the income of a business
depends upon many factors other than its assets. Many of these
factors are transferred along with the business: for example, a
convenient location, the reputation of a trade name, or even simply the
probability that the old customers will resort to the old place. Because
these factors are transferable, persons who purchase a business upon
the open market are often willing to pay more than the total value of
the business' individual hard assets. This additional element of value
is called goodwill.
2 Equit. Distrib. of Property, 3d § 6:73 (internal quotation marks and footnotes
omitted). Goodwill is considered an intangible asset. See Weinberg v. Wallace,
314 S.C. 183, 187–88, 442 S.E.2d 211, 213 (Ct. App. 1994). Thus, once goodwill
is identified as an asset, the question then becomes whether and to what extent
such goodwill should be considered a marital asset.
Many courts have recognized that goodwill may be a business asset or it may be a
personal asset belonging to an owner-employee. See, e.g., Martin Ice Cream Co.
v. Commissioner, 110 T.C. 189, 207 (1998) (holding that a shareholder-employee's
personal relationships amounted to personal goodwill and thus were not properly
considered to be corporate assets and explaining "[t]hose personal assets are
entirely distinct from the intangible corporate asset of [enterprise] goodwill")
(citing MacDonald v. Commissioner, 3 T.C. 720, 727 (1944)).
"Enterprise goodwill is that which exists independently of one's personal efforts
and will outlast one's involvement with the business." In re Marriage of
Alexander, 857 N.E.2d 766, 769 (Ill. App. Ct. 2006). "Enterprise goodwill 'is
based on the intangible, but generally marketable, existence in a business of
established relations with employees, customers and suppliers.'" Yoon v. Yoon, 711
N.E.2d 1265, 1268 (Ind. 1999) (quoting Allen Parkman, The Treatment of
Professional Goodwill in Divorce Proceedings, 18 Fam. L.Q. 213, 215 (1984)).
"[E]nterprise goodwill attaches to a business entity and is associated separately
from the reputation of the owners. . . . The asset has a determinable value because
the enterprise goodwill of an ongoing business will transfer upon sale of the
business to a willing buyer." Wilson v. Wilson, 706 S.E.2d 354, 361 (W. Va.
2010). Many courts have found "[e]nterprise goodwill is an asset of the business
and accordingly is property that is divisible in a dissolution to the extent that it
inheres in the business, independent of any single individual's personal efforts and
will outlast any person's involvement in the business." Yoon, 711 N.E.2d at 1268–
69 (citations omitted).
"In contrast, [p]ersonal goodwill is associated with individuals." Wilson, 706
S.E.2d at 361. "It is that part of increased earning capacity that results from the
reputation, knowledge and skills of individual people." Id. "The implied
assumption is that if the individual were not there, the clients would go elsewhere."
Business Valuation Resources, LLC, BVR's Guide to Personal v. Enterprise
Goodwill 19 (Adam Manson & David Wood eds., 2011) [hereinafter BVR's
Guide]. "Accordingly, the goodwill of a service business, such as a professional
practice, consists largely of personal goodwill." Wilson, 706 S.E.2d at 361.
"[A]ny value that attaches to a business as a result of this 'personal goodwill'
represents nothing more than the future earning capacity of the individual and is
not divisible [in a divorce proceeding]." Yoon, 711 N.E.2d at 1269. In the family
court setting, future earning capacity based on a spouse's reputation, knowledge
and skills—personal goodwill—is considered nonmarketable and thus not property
subject to division. See Butler v. Butler, 663 A.2d 148, 156 (Pa. 1995) ("[W]here
there has been an award of alimony, . . . to also attribute a value to goodwill that is
wholly personal to the professional spouse, would in essence result in a double
charge on future income.").
One court noted the distinction as follows: "[w]here goodwill is a marketable
business asset distinct from the personal reputation of a particular individual, as is
usually the case with many commercial enterprises, that goodwill has an
immediately discernible value as an asset of the business and may be identified as
an amount reflected in a sale or transfer of a business." Prahinski v. Prahinski, 540
A.2d 833, 843 (Md. Ct. Spec. App. 1988) (citing Wilson v. Wilson, 741 S.W.2d
640 (Ark. 1987); Taylor v. Taylor, 386 N.W.2d 851 (Neb. 1986)). However, "[i]f
the goodwill depends on the continued presence of a particular individual, such
goodwill, by definition, is not a marketable asset distinct from the individual." Id.
B. Goodwill in South Carolina
This Court first considered whether goodwill should be treated as marital property
in Casey v. Casey (Casey II), 293 S.C. 503, 362 S.E.2d 6 (1987) (reviewing a court
of appeals' decision involving the valuation and equitable division of a retail
fireworks business operated by the husband). Previously, in reviewing the family
court's valuation of the fireworks business, the court of appeals commented that
"[t]he question of how to handle the goodwill of a sole proprietorship is a
troublesome one," but the court of appeals ultimately concluded goodwill "may
constitute a marital asset subject to division." Casey v. Casey (Casey I), 289 S.C.
462, 466, 346 S.E.2d 726, 729 (Ct. App. 1986). On certiorari, this Court reversed,
finding "[w]hen the goodwill in a business is dependent upon the owner's future
earnings, it is too speculative for inclusion in the marital estate," and noted "[t]he
continued success of the [fireworks] business can be attributed largely to
Husband's lobbying efforts to keep the sale of fireworks legal in South Carolina."
Casey II, 293 S.C. at 504, 362 S.E.2d at 6–7.
In the years since Casey II, this Court has twice examined the issue of whether
goodwill constitutes marital property, both in the context of goodwill inherent in
professional dental practices. See Dickert v. Dickert, 387 S.C. 1, 7, 691 S.E.2d
448, 451 (2010) (rejecting a claim that the goodwill in the dental practice was
enterprise goodwill and thus finding the goodwill was properly excluded from the
marital estate); Donahue v. Donahue, 299 S.C. 353, 360, 384 S.E.2d 741, 746
(1989) (reversing family court's division of the goodwill of husband's dental
practice because "[t]he very nature of a professional practice is that it is totally
dependent upon the professional"). Although these cases seem to hold that
goodwill in general is too speculative to be considered a marital asset, upon careful
review, the goodwill at issue on the facts of each of these decisions was personal
goodwill.8
Today, we recognize enterprise goodwill as marital property subject to equitable
division. We continue to hold that personal goodwill, which follows the owner and
is entirely dependent on the owner's personal or professional services and skills, is
not marital property subject to division. However, we are persuaded that enterprise
goodwill, which inheres in the business itself and is transferrable in the market,
should be distinguished from personal or professional goodwill.
Accordingly, we elect to follow the emerging majority approach and hold
enterprise goodwill is marital property subject to equitable division. See Yoon, 711
N.E.2d at 1272 ("To the extent goodwill is enterprise goodwill, it is divisible.").
We make our decision fully aware of the certainty and ease that would necessarily
result from a categorical rule excluding all goodwill from the marital estate. We
nevertheless believe that today's decision will better enable family courts to
achieve equity in the apportionment of marital estates and will prove to be
8
See also RGM v. DEM, 306 S.C. 145, 410 S.E.2d 564 (1991) (recognizing that
the fair market value of a marital business may include value above and beyond the
business's hard assets).
workable. See Powell v. Powell, 648 P.2d 218, 223 (Kan. 1982) (explaining the
question of whether and to what extent goodwill should be recognized as a marital
asset "is, in the final analysis, a public policy issue"). To be sure, identifying,
valuing, and equitably dividing enterprise goodwill will present challenges, as a
practical matter. The fact that enterprise goodwill is intangible will invariably
create differences of opinion as to the existence of enterprise goodwill and its
value. Yet, experts are routinely involved in family court valuation disputes. We
are confident that South Carolina's excellent family court judges are able to
navigate through the myriad issues associated with the identification, valuation,
and division of enterprise goodwill to achieve an equitable result.
C. Distinguishing Personal Goodwill from Enterprise Goodwill
Before we address the specific facts of this case, we take the opportunity to provide
further guidance to the bench and bar as to the distinction between personal and
enterprise goodwill. Of course, a business may consist of both personal and
enterprise goodwill, as does Candelabra. We emphasize that "before including the
goodwill of a [] business or professional practice in a marital estate, a court must
determine that the goodwill is attributable to the business as opposed to the owner
as an individual." Yoon, 711 N.E.2d at 1269. "If attributable to the individual, it is
not a divisible asset and is properly considered only as future earning capacity that
may affect the relative property division." Id.
"The difference between personal goodwill and enterprise [] goodwill is easy to
define conceptually, but sometimes difficult to measure." BVR's Guide at 37.
Further, "not all businesses have goodwill." Gaskill v. Robbins, 282 S.W.3d 306,
311 (Ky. 2009). Thus, "to the extent a business or profession[al practice] has
goodwill (or has a value in excess of its net assets) it is a factual issue to what
extent, if any, that goodwill is personal to the owner or employee and to what
extent it is enterprise goodwill and therefore divisible property." Yoon, 711 N.E.2d
at 1270. The spouse claiming that goodwill should be included in the marital
estate bears the burden of proving the goodwill at issue is enterprise goodwill and,
thus, is properly considered marital property. Cf. Bodkin v. Bodkin, 388 S.C. 203,
225, 694 S.E.2d 230, 242 (Ct. App. 2010) (noting the spouse claiming property is
part of the marital estate bears the burden of proof) (citation omitted).
Although, the presence and extent of personal or enterprise goodwill depends on
the facts and circumstances of each case, there are numerous factors that can be
examined to help identify the existence and extent of personal or enterprise
goodwill. BVR's Guide at 91. First, the type of the business being valued can
often indicate the existence of personal or enterprise goodwill. Id. at 239. For
example, an important factor is whether the business involves the manufacture or
sale of goods, which can indicate enterprise goodwill, or whether the business
involves delivering highly skilled or personal services, which may indicate
personal goodwill. Id. at 87. Moreover, the nature or attributes of the particular
industry may also impact the goodwill analysis; for example, "[d]entists have close
contact [with their patients], [but] radiologists do not." Id. at 86. It is also
important to consider how customers are drawn to the business, including whether
customers return/repeat their business or whether transactions are largely non-
recurrent and whether new business comes primarily from customer referrals or
from advertising. Id. at 239. As to the company itself, factors to consider include
whether the company is a start-up or a well-established business; whether the
business has its own name or is named after an owner; the number of owners; and
whether the operating systems and procedures are in-place or still in the process of
being established. Id. In ascertaining whether any personal goodwill exists, it is
also important to consider the personal characteristics of the owner, including the
owner's personal reputation, community visibility, age and health, work habits, as
well as the owner's education, experience in the industry, judgment, ability, and
special skills or talents. Id. We underscore that this list of factors is not exhaustive
or exclusive, but rather is included merely as a starting point to guide the family
courts' inquiry. See Crossland v. Crossland, 408 S.C. 443, 453, 759 S.E.2d 419,
424 (2014) ("Formulaic principles and bright-line rules will only hinder the ability
of family court judges to reach an equitable result in this individualized, fact-
intensive area of law.") (quoting Rimer v. Rimer, 361 S.C. 521, 527, 605 S.E.2d
572, 575 (Ct. App. 2004)).
In separating personal and enterprise goodwill, the essential question is: can the
business generate revenue from continued patronage without the current owner's
participation? BVR's Guide at 239. We believe the following chart, which we
have adapted from BVR's Guide, may be helpful in distinguishing personal and
enterprise goodwill.
Personal Goodwill Indicators Enterprise Goodwill Indicators
 Small entrepreneurial business  Larger business, which has
highly dependent on employee­ formalized its organizational
owner's personal skills and structures and institutionalized its
relationships. systems and controls.
 No employment agreement  Owner-employee has
between company and employee- employment agreement with
owner. company.
 Personal service is an important  The business is not heavily
selling feature in the company's dependent on personal services.
product or services.  The business has significant
 No significant capital investment capital investments in either
in either tangible or identifiable tangible or identifiable intangible
tangible assets. assets.
 Only employee-owners own the  The company has more than one
company. owner, some of whom are not
 Sales largely depend on the employees.
employee-owner's personal  Company sales result from name
relationships with customers. recognition, sales force, sales
 Product and/or services know­ contracts and other company-
how and supplier relationships owned intangibles.
rest primarily with the employee­  Company has supplier contracts
owner. and formalized production
methods, patents, copyrights,
business systems, etc.
See id. at 334.
Another factor in distinguishing between personal and enterprise goodwill is the
degree to which a purported purchaser would demand the seller enter into a
covenant not to compete. While a covenant not to compete may be present in any
transaction, the market-driven necessity for a covenant is manifest where personal
goodwill is involved.
In our research, we came across the following example, which we believe
illustrates in a straightforward manner the essential difference between personal
and enterprise goodwill based on the concept of marketability/transferability:
To highlight the differences between these two components of
goodwill, consider the following example of two hypothetical beauty
salons, "Hair Now" and "Salon Pecan." The two salons, located a
mile apart, have virtually identical ownership structures, assets,
liabilities, revenues and net income. Beyond those similarities, the
salons have little in common.
Hair Now is at a busy intersection and serves customers on a walk-in
basis. Profits are split evenly among the owners. In contrast, Salon
Pecan is in a secluded neighborhood and requires customers to make
appointments, often weeks [in] advance, with a particular stylist.
Profits are allocated based on the revenue generated by each owner.
Although both salons produce virtually identical benefits for their
respective owners, there is a difference in the nature of the goodwill
of Hair Now's owners versus that of Salon Pecan's owners. The
owners of Hair Now receive earnings tied directly to the enterprise,
such as its location, business model and mechanism for distributing
profit. The owners of Salon Pecan, however, receive earnings tied
directly to their personal skills, reputation and repeat clientele. Thus,
an owner of Hair Now would typically possess a higher level of
enterprise goodwill, and a Salon Pecan owner would have a higher
level of personal goodwill.
In a business sale, a Hair Now owner would likely find it easier to
transfer to a prospective buyer the goodwill associated with her
ownership interest, due to the expectation that the earnings of Hair
Now would continue at historical levels regardless of who was
working in the business. However, an owner of Salon Pecan would
likely have a harder time transferring her goodwill, due to the
expected decline in earnings from the regular clients who are more
loyal to her than to the salon.
Kotzin Valuation Partners, Personal Goodwill vs. Enterprise Goodwill (March
2009), available at http://www.kotzinvaluation.com/articles/goodwill.htm.
In the above example, the value of each beauty salon may be comprised of both
personal and enterprise goodwill. However, any reasonable valuator would
unquestionably conclude that personal goodwill predominates in Salon Pecan and
enterprise goodwill predominates in Hair Now. For family court equitable division
purposes, while distinguishing between enterprise and personal goodwill may at
times prove to be difficult, the distinction between personal and enterprise
goodwill based on transferability provides a workable framework for determining
inclusion in, or exclusion from, the marital estate.
D. Percentage of Goodwill Personal to Wife
Turning to the facts of this case, both parties challenge the family court's
determination that 10% of the goodwill in Candelabra was personal goodwill
attributable to Wife. Wife claims the family court erred in understating her
personal goodwill as only 10% of the total goodwill and contends that at least 25%
of Candelabra's goodwill is personal to her. Husband counters that the family
court erred in finding 10% of the total goodwill was personal to Wife because
personal goodwill manifests itself only in professional practices, which Candelabra
is not. Alternatively, Husband argues that if a portion of the goodwill is personal
to Wife, because 80% of Candelabra's revenue is generated through sales from the
website (which is not associated with Wife personally), then only the remaining
20% of sales generated in-store could be subject to any personal goodwill
consideration.
As noted, Wife's valuation expert, Raymond McKay, opined that "at least" 20–
25% of Candelabra's goodwill is personal to Wife. In reaching this conclusion,
McKay collected data from the business records, visited the storefront in Mt.
Pleasant, interviewed Wife and other Candelabra employees, and prepared a
detailed report of the history of Candelabra's operations and pertinent financial
information, along with discussions of various accounting and valuation methods
and several issues surrounding the value of Candelabra's goodwill. In his valuation
report, McKay explained that the factors supporting the existence of Wife's
personal goodwill included: Wife's total responsibility for day-to-day management
of the business; total control and responsibility for ongoing product selection;
Wife's continuing website monitoring, revision, and presentation; Wife's direct
personal contact and dealings with manufacturers and vendors; and Wife's formal,
degreed college training in products marketing (with a minor in business
administration), along with her extensive previous retail experience. McKay
testified that without Wife, Candelabra would not have the ongoing ability to offer
a current mix of trendy products and that sales would decline. McKay further
opined that no bona-fide third-party purchaser would pay full fair market value for
Candelabra without requiring a covenant not to compete from Wife, which
signaled the existence of personal goodwill attributable to Wife.9
9
Other courts have found the necessity of a covenant not to compete signals the
existence of personal goodwill. See, e.g., Schmidt v. Schmidt, 120 So. 3d 31, 33
(Fla. Dist. Ct. App. 2013) ("When valuing the enterprise goodwill of a business,
the necessity of a covenant not to compete is significant as it signals the existence
of personal goodwill, which cannot be included in determining the value assigned
to the business for purposes of equitable distribution." (citations omitted)).
Wife's second valuation expert Jay Fishman, a nationally recognized expert on the
valuation of closely held businesses, testified as to both the existence and extent of
Wife's personal goodwill. Fishman explained that the value of any company is a
function of what drives sales/profits in the specific way a particular business
operates. After studying Candelabra's financial documents, conducting a thorough
examination of Candelabra's website and several competitors' websites, and
extensively interviewing various employees, vendors, and suppliers, Fishman
concluded that the two major factors driving Candelabra's business were its
website/internet presence and its desirable, on-trend product mix selected by Wife.
Fishman also testified that, to a lesser extent, Candelabra's value is also attributable
in part to its reputation for good customer service and its existing relationships
with vendors and suppliers; however, Fishman identified product selection and
accessibility on the internet as the most significant factors that drive the value of
Candelabra. Fishman emphasized that the design/layout of the website and the
product selection the site features are the critical elements that positively
differentiate Candelabra from other retailers, prompting customers to purchase
from Candelabra instead of another online retailer. Fishman emphasized that this
differentiation is critically important when selling non-exclusive product on the
internet like Candelabra does because "the competition is fierce [and] the barriers
to entry here are rather low."10
Husband's valuation expert was Dr. Perry Woodside, who is also a superbly
qualified expert in the field of business valuation. In researching how Candelabra's
business operates, Woodside interviewed only Husband and did not visit the store
or interview Wife or any other Candelabra employees. Woodside did not calculate
personal goodwill as part of his valuation; however, on cross-examination, he
candidly acknowledged that there was "some" personal goodwill in Candelabra but
stated that it was "difficult to know" and if pressed to quantify it, then it would be
between "5 to 10%." It was this opinion testimony from which the family court
assigned Wife's personal goodwill at 10% of the value.
10
Regarding Husband's contention that anyone could take over Wife's position at
Candelabra and experience the same success, Fishman stated:
That's a field of dreams. Businesses don't work that way. If you
could do that, everybody would do it. . . . [Businesses] have to figure
out a way. What differentiates me from the competition and [here] I
think it's product selection, customer service, all those things,
okay. . . . [I]t's [ludicrous] to think you can build this up, have
someone else in there who is not really trained, and prosper.
We find the undisputed evidence is that some of the goodwill value was personal
to Wife, especially in view of Woodside's acknowledgement that some personal
goodwill existed. The evidence in the record as to Wife's role and involvement in
the business, particularly in the area of product selection and format/design of the
website, supports the conclusions of McKay and Fishman. Indeed, Wife's
testimony was corroborated by that of current and former Candelabra employees
and vendors who testified as to the significance of Wife's personal contributions to
the business and the impact her unique talents and creativity had on the business.
One employee even quipped that if Wife left, "it wouldn't be Candelabra. Whitney
is Candelabra."
We reject Husband's contention on appeal that it is only through professional
practices (such as doctors, dentists, accountants, attorneys, etc.) that a spouse can
develop personal goodwill. See Ward, 755 S.E.2d at 500–01 (affirming family
court's determination that one-third of husband's interest in logging business,
which operated under the trade name of Advantage Timberland, Inc., was personal
to husband and not enterprise goodwill where Husband possessed key personal
relationships with employees and government regulators and performed his duties
with exceptional skill and efficiency); see also Hough v. Hough, 793 So. 2d 57, 58
(Fla. Dist. Ct. App. 2001) (affirming the family court's finding that 100% of
goodwill in parties' business which owned and operated coin-operated air and
vacuum machines on the premises of convenience stores and service stations was
husband's personal goodwill because the company derived a large portion of its
income from a handful of accounts that were freely or easily terminable by the
customers and depended on husband's store of personal goodwill); McQuay v.
McQuay, 217 P.3d 162, 164 (Okla. Civ. App. 2009) (reversing the lower court's
inclusion of goodwill in the marital estate where the goodwill in the parties'
concrete business was entirely attributable to husband's good reputation as a
cement mason); In re Marriage of Maxwell, 876 P.2d 811, 813 (Or. Ct. App. 1994)
(finding all goodwill in self-employed advertising copywriter's sole proprietorship
was personal because the continued success of the business is completely
dependent on the creative, personal services he provides).
In so finding, we acknowledge that several circumstances surrounding
Candelabra's website indicate the presence of enterprise goodwill. First, the
website's domain name, www.shopcandelabra.com, is associated with the business
itself and is not specific to or associated with Wife personally. Cf. George
Hawkins, Personal Versus Practice Goodwill: A Visit to the "Plastics" Doc, Fair
Value, Vol. XX, No. 2, Summer/Fall 2013, at 5 (noting website or domain names
that are person-specific or promote an individual are not easily transferrable and
suggest personal goodwill). Further, in connection with Candelabra's shift in
business strategy, the website that initially began as a minor feature of
Candelabra's overall marketing strategy was transformed into the central feature of
all business operations, now serving as the online portal through which
approximately 80% of all sales are placed. Indeed, all three experts agree that
Candelabra's internet presence, through the SEO campaign and website format and
functionality, significantly drives Candelabra's sales and overall value as a
business. See id. at 4 (noting mass- and web-driven marketing strategies indicate
enterprise goodwill).
Nevertheless, we categorically reject Husband's suggestion that because 80% of
sales occur through the website, that somehow only 20% of Candelabra's value is
attributable to in-store sales and is at play in determining personal goodwill.
Husband cites no authority for the proposition that the presence of a website and
internet sales precludes a finding of personal goodwill. To the contrary, the
evidence establishes the presence of Wife's personal goodwill in the website in that
Wife is solely responsible for the design and layout of the website and for selecting
product to be featured on the website. See In re Marriage of McTiernan &
Dubrow, 35 Cal. Rptr. 3d 287, 304 (Cal. Ct. App. 2005) (Boland, J., concurring)
(explaining that artistic or creative talents are inherently personal and cannot be
considered a divisible marital asset). Moreover, as Fishman noted in his testimony,
appearing relevant to search engines such as Google through SEO strategies does
not automatically translate into sales and profits if the website does not feature the
product customers are looking to buy or is not structured in a way that customers
can find the product they are looking for; rather, it is Wife's creative direction as to
the website layout and her eye for design in picking products that convert Internet
shoppers from mere visitors into purchasing customers.
Given our review of the record as a whole, we find the family court erred in
finding only 10% of Candelabra's goodwill is personal to Wife. We assign 20% of
the goodwill value to Wife's personal goodwill. We find support for this value in
the testimony of McKay, who thoroughly studied and analyzed the issue and
whose judgment on the matter we find most persuasive.
Wife argues we should dismiss Woodside's opinion because of the pressure
Husband exerted on Woodside to value Candelabra as high as possible. We
understand the games that are played in family court in the valuing of marital
assets: the spouse expecting to receive an asset wants the asset valued as low as
possible while the spouse not receiving the asset wants the asset valued as high as
possible. We further recognize in this case that Husband attempted to play this
game, as evidenced by the series of emails he sent to Woodside imploring
Woodside to assign a high value to Candelabra. In one email, Husband provided
documents to Woodside and observed, "I am confident this material will continue
to help build our valuation of Candelabra." In another email to Woodside,
Husband stated, "You are the only offense I have. Let's keep the wheels turning
and get me the value [I am] deserving for a company with this type of
opportunity."
We are persuaded that Woodside, a highly respected expert, did not succumb to
Husband's pressures. In fact, Husband admitted he argued with Woodside
concerning a "multiplier" and "I fought him on it and he didn't give in." Therefore,
we reject Wife's contention that we summarily dismiss the Woodside valuation.
While we ultimately adopt most of the McKay valuation, we have carefully
considered and respect the Woodside valuation. In fact, we accept Woodside's
view that a marketability discount should not be utilized in valuing Candelabra.
We add that a factor in our acceptance of most of the McKay valuation is the date
of litigation value, which only McKay produced in a timely manner, a matter we
discuss below.
E. Date of Valuation
By statute, marital property subject to equitable distribution is presumptively
valued at the date of the divorce filing. S.C. Code Ann. § 20-3-630(A).
Nevertheless, the parties may be entitled to share in any appreciation or
depreciation in marital assets occurring after the commencement of marital
litigation but before the final decree. Burch v. Burch, 395 S.C. 318, 325, 717
S.E.2d 757, 761 (2011) (citation omitted). The burden of proof is on the party
seeking a deviation from the statutory filing date. Id. at 329, 717 S.E.2d at 763.
In South Carolina, family and appellate courts look to whether there has been
active or passive appreciation or depreciation of the marital assets when
determining the proper date for valuation. Id. at 325, 717 S.E.2d at 761. "Passive
appreciation refers to enhancement of the value of property due solely to inflation,
changing economic conditions, or market forces, or other such circumstances
beyond the control of either spouse." Id. at 325–26, 717 S.E.2d at 761 (emphasis
added) (quotations and citation omitted). "[A]ctive appreciation, on the other
hand, refers to financial or managerial contributions of one of the spouses." Id. at
326, 717 S.E.2d at 761 (quotations and citation omitted).
In valuing Candelabra, the family court found that although the date litigation
commenced was in June 2011, the proper date for valuing Candelabra was June
2012. The family court reasoned that the growth of the business during the
pendency of the litigation was due to the passive "market force of the internet."
Moreover, the family court took a more generous view of Husband's contributions
to the business than we do.
Even assuming Husband, as the family court found, "buoy[ed]" the "sinking ship"
of Candelabra, such efforts occurred before the marital litigation was commenced.
Husband was terminated from Candelabra prior to the filing date, and thereafter,
by virtue of the temporary order, he was prohibited from making any decisions
affecting the company. Because only post-filing activities impact the analysis of
the active-passive distinction, we find Husband's actions prior to the filing date do
not support a June 2012 valuation date. See Burch, 395 S.C at 327–28, 717 S.E.2d
at 762 (noting that where the parties dispute the valuation date of a marital asset
that has appreciated after the marital litigation filing date, only the spouses' post-
filing activities matter in evaluating whether post-filing appreciation was active or
passive and finding husband's post-filing activities in attending two trade shows
did not amount to active efforts).
Further, it is not faithful to the record to attribute the success of Candelabra's
website sales to mere "market forces" or existence of the internet. Rather, the
evidence demonstrates that the continued growth in Candelabra's business between
June 2011 and June 2012 was primarily attributable to Wife's active and continuing
managerial efforts in selecting and arranging product on the website, in continuing
to revise and refine the SEO campaign as to existing brands, and in expanding the
SEO campaign to include new brands on the Candelabra website.11
Husband admitted the changing nature of Candelabra's business and acknowledged
the importance of ongoing, active management for growth. Wife's valuation expert
McKay outlined the distinction between active and passive changes in value and
opined that the increase in Candelabra's value after the filing date was due to active
forces, including Wife's managerial oversight, product selection, and marketing.
We agree and find that the increase in Candelabra's value between June 2011 and
11
The evidence in the record reveals that the website requires much more ongoing
maintenance than the physical storefront; the SEO keywords are monitored,
optimized, and indexed on a weekly or daily basis.
June 2012 was the result of Wife's active efforts. Husband has thus failed to meet
his burden of proving that the post-filing appreciation of Candelabra was due to
passive forces.
As a result, we adhere to the statutory valuation date: the date of filing. In this
case, the valuation date closest to the filing date is June 30, 2011.
F. Principles of Valuation
"When valuing business interests for the purpose of equitable distribution, the
family court should determine 'the fair market value of the corporate property as an
established and going business.'" Reid v. Reid, 280 S.C. 367, 373, 312 S.E.2d 724,
727 (Ct. App. 1984) (quoting Santee Oil Co. v. Cox, 265 S.C. 270, 273, 217 S.E.2d
789, 791 (1975)). "This is to be accomplished by considering the business' net
asset value, the fair market value for its stock, and earnings or investment value."
Id. (quotations and citations omitted).
The family court entered a scheduling order prior to trial, which required, among
other things, the completion of written discovery in June 2012; the completion of
mediation in July 2012; and the completion of depositions in August 2012; and set
September 17, 2012, as the date of trial. At the time of Woodside's deposition in
August 2012, he was asked his opinion of Candelabra as of the 2011 date of filing.
Woodside had no opinion, for he only valued the business as of June 2012. In
short, for reasons we do not understand, Husband ignored the statutory valuation
date. Apparently in response to the deposition inquiry, Woodside at the last minute
(a couple days before trial) produced a June 2011 valuation. Husband offers no
reason for failing to timely provide the date of filing valuation.
Wife asserts this violation of the scheduling order leaves only McKay's date of
filing valuation for the family court and this Court to consider. While Wife makes
a compelling argument, we need not reach the question of the admissibility of
Woodside's tardy date of filing valuation, for we would in any event adopt in large
part the McKay valuation.
McKay considered in exacting detail the history of the company, examined the
value of Candelabra from all approaches,12 and balanced his opinion after weighing
12
Guided by this Court's opinion in Santee Oil Co., McKay considered the
adjusted net asset value, the excess earnings method, the capitalized earnings
method, the discounted future benefits method, and the market approach and
the appropriate factors. We do adopt a central feature of Woodside's analysis—the
inappropriateness of using a lack of marketability discount in this case.13 We
decline to impose a bright line rule regarding the appropriateness of such discounts
in all family court business valuations, but we find no justification for discounting
the value of Candelabra in this case due to lack of marketability. Because Wife
will retain ownership of Candelabra, we see no legitimate reason to indulge in the
fiction of a marketability discount.14 See Fausch v. Fausch, 697 N.W.2d 748, 752–
53 (S.D. 2005) ("Whether or not it is fair or appropriate to apply a [marketability]
discount in a divorce case where no immediate sale is contemplated is . . . based
upon the evidence of the case.") (citations omitted).
weighted each as to their relative bearing upon the value of the closely held
company. We believe this approach is most consistent with existing jurisprudence
regarding valuation of closely held businesses. See Belk of Spartanburg, S.C., Inc.
v. Thompson, 337 S.C. 109, 116, 522 S.E.2d 357, 361 (Ct. App. 1999) (stating
"[i]n Santee our supreme court determined three factors were ordinarily to be
considered in a stock valuation case: (1) net asset value, (2) market value, and (3)
the earnings or investment value of the dissenting stock. After these factors have
been considered, each is then weighted as to their relative bearing upon the
ultimate determination of the fair value of the dissenting stock," and discounting
the significance of appraisals that did not utilize all three methods or engage in
weighting) (citing Santee Oil Co., 265 S.C. 270, 217 S.E.2d 789). While a
traditional approach to valuation may often be dispositive in a family court setting,
we recognize that flexibility must exist to allow our family court judges (and
appellate courts under de novo review) discretion to fashion equitable relief under
the facts and circumstances presented.
13
The lack of a marketability discount was part of Woodside's June 2012 valuation
and was in compliance with the scheduling order. We also note that Wife's second
expert, Fishman, also opined that he did not believe it was appropriate to apply a
discount for a lack of marketability in determining Candelabra's value because
there were no "exceptional circumstances" that would warrant such a discount,
particularly where there was no contemplated sale of the business.
14
McKay in his report noted the often-made argument that "since a sale of the
company is not anticipated as a consequence of most divorce litigation, no
[marketability discount] should apply." McKay opted for a marketability discount,
and understandably so, in his faithful adherence to the concept of "fair market
value." We do not address, and leave for another day, other discounts generally
associated with determining fair market value.
G. Apportionment of Candelabra
Equitable distribution of marital property "is based on the recognition that marriage
is, among other things, an economic partnership." Morris v. Morris, 335 S.C. 525,
531, 517 S.E.2d 720, 723 (Ct. App. 1999). "Upon dissolution of the marriage,
marital property should be divided and distributed in a manner which fairly reflects
each spouse's contribution to its acquisition, regardless of who holds legal title."
Id. Section 20-3-620(B) of the South Carolina Code provides factors for the family
court to consider in apportioning marital property and instructs the family court to
"give weight in such proportion as it finds appropriate" to each of the following
factors:
(1) the duration of the marriage together with the ages of the parties at
the time of the marriage and at the time of the divorce . . . ; (2) marital
misconduct or fault of either or both parties . . . ; (3) the value of the
marital property . . . ; (4) the income of each spouse, the earning
potential of each spouse, and the opportunity for future acquisition of
capital assets; (5) the health, both physical and emotional, of each
spouse; (6) the need of each spouse or either spouse for additional
training or education in order to achieve that spouse's income
potential; (7) the nonmarital property of each spouse; (8) the existence
or nonexistence of vested retirement benefits for each or either
spouse; (9) whether separate maintenance or alimony has been
awarded; (10) the desirability of awarding the family home . . . ; (11)
the tax consequences to each or either party . . . ; (12) the existence
and extent of any support obligations, from a prior marriage . . . ; (13)
liens and any other encumbrances upon the marital property . . . ; (14)
child custody arrangements and obligations . . . ; and (15) such other
relevant factors as the trial court shall expressly enumerate in its
order.
S.C. Code Ann. § 20-3-620(B).
We find the most relevant apportionment factors in this case are: (1) Wife and
Husband are in good health; (2) Wife and Husband are educated, able-bodied
individuals, with many future years of strong earning potential, along with the
corresponding absence of the need for separate maintenance or alimony; (3) Wife's
disproportionately greater contributions towards enhancing the business of
Candelabra by focusing her efforts on establishing lasting relationships and
ensuring long-term growth and stability, in addition to serving as the children's
primary caregiver; (4) Wife being awarded full custody of the couple's two minor
children; and (5) Husband's frequent rages, which although not the ultimate basis
for the divorce, nonetheless contributed to the breakup of the marriage.
We have carefully considered these and all factors, and while awarding a greater
share of the marital estate to Wife could be justified, we see no reason to set aside
the family court's equal division of the marital estate. We, therefore, affirm the
family court on the equal division and deny Wife's request for a greater share of the
marital estate.
H. The Value of Candelabra
Having set forth the analysis for the inclusion of enterprise goodwill in the marital
estate, for an equal division of the value of Candelabra, and for the adoption of the
McKay date-of-filing valuation, together with Woodside's proposal concerning the
exclusion of a marketability discount, we set forth the value and establish the
procedure for Wife to pay Husband for his remaining interest in the business.
As of the date marital litigation was filed, Candelabra had a value of $1,200,000.
Subtracting from that figure the value of Candelabra's hard assets, which was
$353,687,15 we arrive at the value of Candelabra's goodwill, which is $846,313.
Only 80%, or $677,050, of the overall goodwill value is enterprise goodwill
includable in the marital estate. Thus, only $677,050 is a divisible marital asset,
and Husband's 50% share of such enterprise goodwill is $338,525. Wife shall pay
$338,525 to Husband together with interest at the rate directed by the family court.
Interest shall be calculated from the date of the family court final decree.
Husband assigns error to the family court granting Wife five years to purchase
Husband's interest. We agree and order that if Wife elects to retain ownership of
the business, she shall make payment in full to Husband within ninety days from
the sending of the remittitur to the family court.
As noted, this Court has previously ordered Wife to pay Husband $176,843,
15
which represented his 50% share of the hard-assets value.
V.
We address the final assignments of error in summary fashion. Given our
disposition of the value of Candelabra, we reverse the award to Husband of his
expert witness fees.16 While an appellate court retains the right to remand an
award of fees and costs in light of changed beneficial results on appeal, we decline
to order a remand in this case for the sole purpose of revisiting the expert witness
fee award. Compare Rogers v. Rogers, 343 S.C. 329, 334, 540 S.E.2d 840, 842
(2001) (noting that in light of the remand on the substantive matter, the issue of
attorney's fees was also remanded for reconsideration), with Myers v. Myers, 391
S.C. 308, 322, 705 S.E.2d 86, 94 (Ct. App. 2011) (modifying the family court's
award of attorney's fees to Wife where the appellate court's decision diminished the
beneficial results to Wife, rather than remanding to the family court). As a result,
Wife shall not be responsible for any part of Husband's expert witness fees.
Husband argues that because Wife desires to retain ownership of Candelabra, she
forfeited her ability to challenge the family court's value on appeal. Husband
advances the "acceptance of benefits" doctrine in support of his position.
Succinctly stated, the doctrine provides that when a party voluntarily accepts
benefits provided to him under a decree, such acceptance acts as a waiver of his
right to challenge the benefit on appeal. See 4 C.J.S. Appeal & Error § 62 (2007)
("Under some authority, voluntary compliance with a court's judgment moots
appellate review, such as when an appellant accepts the benefits of or acquiesces in
the judgment . . . ."). The doctrine does not apply here to foreclose Wife's ability
to challenge the family court value on appeal. See id. ("However, it has also been
held that voluntarily complying with a court order does not render an appeal moot.
An appeal of a judgment is not rendered moot by a voluntary act that moots part of
a claim, where the issue of liability or damages still remains.") (footnotes omitted);
see also 5 Am. Jur. 2d Appellate Review § 587 (2007) ("[I]n order to be barred
from appealing, a party must accept the benefits of the judgment under
circumstances which indicate an intention to finally settle and compromise
disputed claims."). This Court and the court of appeals routinely address such
valuation challenges. The suggestion that a spouse in family court litigation who is
16
Doe v. Doe, 370 S.C. 206, 220, 634 S.E.2d 51, 59 (Ct. App. 2006) (noting "[t]he
same considerations that apply to awarding attorneys' fees also apply to awarding
litigation expenses" and reversing the family court's award of expert witness fees)
(citing Ellerbe v. Ellerbe, 323 S.C. 283, 298, 473 S.E.2d 881, 889 (Ct. App.
1996)).
awarded an asset has somehow waived the ability to challenge the asset's value on
appeal borders on frivolity. We dispose of Husband's argument under Rule 220,
SCACR, as manifestly without merit.
VI.
The order of the family court is affirmed in part and reversed in part.
AFFIRMED IN PART, REVERSED IN PART.
TOAL, C.J., BEATTY and HEARN, JJ., concur. PLEICONES, J.,
concurring in result only.