Gomez v. Gomez, 168 SW3d 51 (KY. App., 2005)
Hospital based medical practice valuation which included
no goodwill value was reluctantly affirmed because, while
capitalization of excess earnings method is an acceptable
approach, the trial court is not required to use this method
and trial court ruling as to valuation will not be disturbed
unless clearly contrary to the evidence submitted. The
Court of Appeals reversed the maintenance award ($5,000
per month for three years + $2,424 per month for first and
second mortgages where husband grossed $600,000) to
$800,000 per year. Assignment of $52,000 credit card debt to
wife was also reversed because at least $18,000 of the debt
was for two rugs, of which the husband received one and the
debt was in the husband's name. The Court of Appeals also
reversed the attorney fee award of only 22% of wife's attorney
fees as the trial court did not enumerate any of the factors set
out in Sexton v. Sexton.
Cheryl and Eduardo were married June 2, 1985. Cheryl worked as a registered nurse until the birth of their daughter in 1988. Thereafter, they relocated to Somerset, Kentucky, and Cheryl stayed home to raise the daughter. Eduardo became employed by Bluegrass Radiology Associates, and in 1995 became a partner. For three years preceding the divorce, Eduardo grossed between $600,000 and $800,000 per year as a one-third partner.
Cheryl and Eduardo resolved many of their issues at mediation, but could not agree upon the value of Eduardo's practice, the amount and duration of maintenance, the allocation of a $52,000 credit card debt, and whether Eduardo should be responsible for Cheryl's attorney fees and expert witness fees.
The trial court held (1) Eduardo's share of Bluegrass Radiology was worth $106,284, based upon Eduardo's expert witness who attributed no goodwill value to the practice, and based the value solely on book value; (2) Eduardo to pay Cheryl maintenance of $5,000 per month for three years, in addition to the first and second mortgages on the family home awarded to Cheryl, approximately $2,424 per month; (3) Cheryl to pay the credit card debt of $52,000, there being insufficient evidence to support Cheryl's claim that the debt was a joint obligation; (4) Eduardo to pay $12,000 of Cheryl's attorney fees and $1,000 of her expert witness fee, about 22%.
Cheryl appealed. Held: (1) Reluctantly affirmed as to value of the practice. The Court says Clark v. Clark, 782 SW2d 56 (Ky.App. 1990) is the seminal case in Kentucky on valuing a professional practice. That case concluded the use of the capitalization of excess earnings method for valuing a practice is an acceptable approach - but does not require the trial court to use this method. The trial court's ruling as to valuation will not be disturbed unless clearly contrary to the evidence submitted. The Court notes that others entering or leaving the practice paid nothing for goodwill; the value was based upon a percentage of the accounts receivable. This is a hospital based practice with no patient list or patient contact. (2) Reversed as to the maintenance award, as the trial court took none of the factors enumerated in KRS 403.200(2)(a) to (f), eg., age, education, length of marriage, standard of living, etc. into consideration. (3) Reversed as to the $52,000 credit card debt. At least $18,000 of the debt was for two rugs, of which Eduardo received one, and the debt was in his name. (4) Reversed as to attorney fees. The trial court did not enumerate any of the factors set out in Sexton v. Sexton, 125 SW3d 258 (Ky., 2004).