Sneed v. Sneed, 2024
This case concerned the North Carolina appeal of a divorce decree by the trial court. The appellate court affirmed the decisions of the trial court and held that the trial court was within its discretion to accept the business appraiser’s testimony and valuation of the husband’s law firm; the trial court did not err in classifying the law firm as entirely marital property; and the trial court did not abuse its discretion in valuing the law firm because neither party offered a value as of the date of distribution.
Factual and procedural background.
The husband appealed from an equitable distribution order and judgment awarding the wife $1,550,000 representing one-half of the value of the husband’s law firm and other issues. The parties divorced on March 8, 2016. During the marriage, the husband started a law firm, Sneed PLLC. On May 2, 2019, the trial court appointed Greg Reagan, CPA/ABV, to value Sneed. In July 2019, all issues were settled except “the classification, valuation, and distribution of Sneed, PLLC and all assets owned by Sneed, PLLC[.]”
Reagan provided both parties with a draft valuation on Sept. 25, 2019, indicating a value of the law firm of $3,220,000. Reagan tried for the rest of 2019 to get documents to value Sneed but was not given any by a noncooperative Jason Sneed (the husband) who did not provide information nor pay the balance of his bill. The wife paid the balance of the bill, and, on March 6, 2020, Reagan provided both parties a “calculation of value” of Sneed.
“On 14 December 2020, Defendant hired Reagan to perform a Valuation of Sneed, PLLC as of 5 January 2015—the date of separation.” The husband testified that, as of the date of trial, December 2021, the value of Sneed was either negative or zero due to an outstanding line of credit. Reagan testified to a value of $3,100,000 as of the date of separation, and that 10% of the Sneed value was enterprise goodwill, while the other 90% was personal goodwill. The trial court accepted Reagan’s date of separation value of $3,100,000 and awarded the wife $1,550,000.
“The trial court further found its value included a valuation of the goodwill of Sneed, PLLC of $302,436 enterprise goodwill and $2,688,321 personal goodwill. The trial court did not find a date of distribution value of the firm.” Also, the plaintiff “has failed to provide the [c]ourt with any credible value of Sneed, PLLC as of the date of separation or as of the date of trial.”
Issues.
The issues here are:
- Are the trial court findings supported by the evidence?
- Valuing Sneed at $3,100,000.
- Classifying Sneed as a marital asset.
- Failing to “distribute” the decrease in the value of Sneed.
- Other related issues not germane to the valuation issues.
Valuation of Sneed.
“The task of a reviewing court on appeal is to determine whether the approach used by the trial court reasonably approximated the net value of the partnership interest. If it does, the valuation will not be disturbed.” (Stowe v. Stowe) This court, in Poore, stated that“[t]he valuation of each individual practice will depend on its particular facts and circumstances[,]”. Further, “[i]n ordering a distribution of marital property, a court should make specific findings regarding the value of a spouse’s professional practice and the existence and value of its goodwill and should clearly indicate the evidence on which its valuations are based, preferably noting the valuation method or methods on which it relied.”
The husband argued that the trial court erred in its value of Sneed by accepting Reagan’s testimony and reports. However, the husband’s argument failed to note the evidence that he refused to cooperate with Reagan and violated trial court orders (as outlined in the opinion). Together, the trial court findings made clear the plaintiff was a significant impediment to Reagan’s timely and accurate valuation of Sneed. Thus, the trial court was within its discretion to accept Reagan’s testimony and valuation. The husband also challenged the methodology Reagan used to value Sneed. At trial, the husband did not object to being tendered as an expert in business valuation. Reagan looked at revenue trends, cash flow, etc. in using the capitalized cash flow method to value Sneed. The trial court made thorough findings to support its valuation of Sneed at $3,100,000.
There was no finding of clear legal error (Sharp v. Sharp) that would cast doubt on the trial court’s determination. “[W]e conclude the trial court did not err in finding Reagan’s calculations to be credible and relying upon them in determining the value of Sneed, PLLC.”
Classification of Sneed.
The husband argued that the trial court erred by classifying Sneed as entirely marital property. He contended that his personal goodwill, 89.9% of the value of Sneed, should be excluded from the marital estate as his separate property. North Carolina courts have consistently declined to draw a distinction between personal and enterprise goodwill. In Poore, the court addressed goodwill in a closely held corporation. This court held that, “[i]n valuing the professional association, the court should clearly state whether it finds the practice to have any goodwill, and if so, its value, and how it arrived at that value.” Thus, goodwill can be part of the marital estate.
The trial court here stated that it had accepted Reagan’s value and noted that Reagan found the goodwill amount to be $2,990,757 with $302,346 being enterprise goodwill and $2,688,321 being personal goodwill. These amounts were all accepted by the trial court and determined to be marital property under North Carolina law and distributable.
Decrease in the value of Sneed.
Neither party here provided credible evidence as to the value of Sneed at the date of distribution. The trial court did not find the husband’s testimony that Sneed had a negative value as of the date of distribution to be credible, and no support was offered. “In the absence of credible evidence supporting the value of an asset, the trial court is not obligated to make specific findings as to value.” (Gratsy v. Gratsy) The trial court did not abuse its discretion in valuing Sneed.
The appellate court affirmed the trial court.
Editor’s note: This case reaffirmed North Carolina case law that goodwill of a business, whether personal or enterprise, was a marital asset. As you can see in this case, the personal goodwill amounted to almost 90% of the total business value.