Brenzel v. Brenzel (Ky) Valuation Of Buisness/Draws From Buisness Not Supported By Note

Brenzel v. Brenzel, ___ S.W. 3d____ (Ky. App. 2008)

Brenzel v. Brenzel, ___ S.W. 3d____ (Ky. App. 2008)

Husband appealed TC’s Order resulting from distribution of property in dissolution action, alleging that TC erred when it valued his interest in businesses partially owned by him and when it denied his CR 60.02 motion. Wife cross-appealed, alleging that TC erred when it determined Husband’s income and that the amount of her maintenance award was an abuse of discretion.

Husband and Wife were married for sixteen years and have 2 minor children. Throughout the marriage, Husband was involved in several business ventures with his father and brother. Husband alleged that TC erred when it determined that he would not have to repay draws and advances made against the capital account of the family-owned businesses and, thus, were not properly characterized as debts owed by Husband nor debts that decreased the value of his business interests. In addition to his salary, there was evidence that Husband had taken draws from the partnership and had decreased its capital account in the amount of $324,508.

Wife’s CPA utilized the asset approach to value Husband’s interest in the family businesses, but did not deduct draws and advances by either brother as there were no promissory notes or evidence that debts were owed to a third party as a result of the draws and advances. He concluded that the businesses were worth $13,500 and $183,150. One of Husband’s financial experts deducted the value of the draws and advances and a negative capital account from one business’ value and concluded that it had a negative value of $656,846, and he testified that if that business was dissolved or sold, the partners could require Husband to repay his portion of the money, which totaled $324,508. Husband’s other expert testified that real estate owned by the other business was worth less than the amount it appraised for a few years prior, even though Husband received his full portion of the appraised amount when the property was sold. TC concluded that the values of Husband’s interests in the businesses were $162,800 and $13,500, as there was no credible evidence that upon dissolution of the partnership or its sale, Husband would be required to pay back the approximately $324,508 he received in draws and advances against the capital account as suggested by Husband’s expert. The court then awarded $80,000 to Wife as her marital interest in the businesses and Husband $96,300.

CA found significant the absence of promissory notes signed by Husband, any specific evidence in the record that Husband was obligated to repay the money, or evidence that Husband had made any past payments toward the amount and agreed with Wife that there was no abuse of discretion in TC’s refusal to deduct that amount from the value of Husband’s interest in the family businesses.

After receiving TC’s original ruling and rulings on CR 59.05 motions filed by both parties, Husband filed a CR 60.02 motion alleging that Wife had made a substantial down payment on a residence and possibly failed to disclose marital assets or had additional income, and that he had a non-marital interest in property included in the marital estate. He cited health issues as the reason for his failure to raise the issue earlier. Prior to the ruling on the motion, Husband filed this appeal. Husband contends that TC denied his CR 60.02 motion based on its erroneous interpretation of the law that since he had filed a notice of appeal prior to TC’s ruling on the motion, the court lost jurisdiction. However, he failed to cite to the record where TC expressed the basis for its denial of his motion. CA found that that the grounds alleged in Husband’s motion and affidavit were insufficient to warrant the relief requested and, therefore, it was properly denied.

Wife challenged TC’s calculation of Husband’s income, asserting that TC should have calculated the businesses’ projected future earnings based on the past few years’ performance, rather than setting a lower amount based on predicted downturns in profitability. TC found, in agreement with Husband’s testimony, that Husband’s gross monthly income was $4,847.17. Wife argued that Husband’s income should have been based on the years immediately preceding the dissolution hearing during which Husband’s income was higher than $4,847.17. CA disagreed, finding that there was persuasive evidence that the profits from the family businesses had steadily declined over the past five years, and the fact that real estate owned by the businesses was listed for sale indicated that Husband’s future income was speculative.

Wife also challenged the amount of maintenance awarded on the basis that her reasonable living expenses exceed her income and the maintenance awarded. Wife is a 40 year-old high school graduate who receives Social Security Disability benefits of $804 per month. TC awarded permanent maintenance of only $250 per month, though her reasonable needs total $2,201 per month. CA disagreed with Wife, noting that Wife received $107,130.20 in marital property and that Wife was assigned a comparatively small amount of the marital debt. Thus, when it determined the amount of maintenance to award, TC properly considered the factors set forth in KRS 403.200(2). Affirmed.

As digested by Michelle Eisenmenger Mapes, Diana L. Skaggs + Associates

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