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Discount of Appraisal of Business During a Divorce in Arizona

Posted on : February 29, 2016, By:  Christopher Hildebrand
Business Appraisal in Arizona Divorce

Discount of Appraisal of Business During a Divorce in Arizona

In the unpublished decision of Sammons v. Keaggy, the Arizona Court of Appeals addressed Beverly Sammons’ (Wife) appeal of the family court judges ruling in a divorce decree ordering her husband, David C. Keaggy, to sell the family business and award Wife 50% of the proceeds from that sale. The order specifically allowed the Husband or the couple’s adult son to purchase the business at a discounted price.

A Brief History of the Case: Sammons v. Keaggy

After a forty year marriage, the wife filed for a dissolution of the parties’ marriage in June of 2012. The couple had equal ownership in David Keaggy & Associates, LLC. The value of the business was one of the major disputes during the divorce proceedings. The husband operated the business and their son had been employed at the company for more than seven years. The wife presented testimony at trial from en expert witness, Mark Hughes, who specialized in business valuations.  The expert estimated a value for the business to be $240,000 if the husband continued to operate the business. In the event the husband intended to sell the business, but assisted the new owner in the operation of the business for a transitional period of six to twelve months, the expert estimated the value of the business to be $190,000.

The husband testified that the valuation was too high, but did not offer any additional evidence as to its value. He further stated that he wanted to retire and that he was unwilling to sell the business if it meant he had to work for an additional 6 to 12 months. He stated he hoped the parties’ son would run the business, but their son testified he could not purchase the business because he could not afford to buy it.  The husband further testified he was willing to dissolve the business or let Wife have it, but that he did not agree to buy her out because he was ready to be done with it.

The Court noted the business was the couple’s most valuable asset and also noted there were not sufficient additional marital assets to offset the value of the business in an award to Wife. Therefore, the trial court ordered the parties to begin the process of preparing the business for sale and to divide the proceeds equally. Arizona Community Property Law The order also stated that if the the husband or their son wished to buy the business they could do so at a discounted rate of $150,000. Wife moved for a new trial, but was unsuccessful.

Considering Additional Factors of the Case

During the deposition of the parties’ son, he testified that he was willing to purchase the business from the wife for $100,000, which he referred to as a wild guess as to the value of the business as long as he could pay for it in monthly installments. The other $50,000 he would receive as a “gift” from the husband.

The wife argues on appeal that the trial court erred when it ordered the business sold. She states the business should have been awarded to the husband and the court should have imposed a lien on the business (A.R.S. Section 25-318(E)) in order to secure payment from the husband to the wife for $120,000 per the valuation of the business at $240,000.

Upon its review of the case, the Arizona Court of Appeals noted the order offering a “discounted price” of $150,000 for the husband or son was not supported by any evidence presented at trial. By offering this discounted price, the trial court effectively authorized a $75,000 payment to the wife for her share of the value of the business, which was substantially lower than the valuation according to the only expert who testified at the trial. Also of interest is the fact that the family court judge did not impose a deadline for the sale of the company.  It appears the husband continues to operate the company and that no payment has been made to the wife. Without evidence supporting the $150,000 purchase price, the Court abused discretion in selecting a lower value for the business.

The Court of Appeals’ of Ruling

Because there is no evidence supporting the $150,000 “discounted” purchase price, the Court of Appeals of Arizona finds that the Family Court abused its discretion when permitting the husband or their son to purchase the business at the lower valuation. Therefore, the portion of the decree allowing the husband or their son to purchase at a lower value was vacated and remanded for additional orders in compliance with the directive to sell the business and secure the payment to the wife for her 50% share of the value of the business, which is $190,000 according to record.

Hildeband Law, PC.

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