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The Valuation of a Law Practice in a Divorce in Arizona | Voted “Best of the Valley”

Posted on : March 14, 2016, By:  Christopher Hildebrand
Valuation of a Law Practice in a divorce in Arizona

The Valuation of a Law Practice in a Divorce in Arizona

Community Property Interest in a Professional Partnership

The Valuation of a Law Practice in a Divorce in Arizona.

The Valuation of a Law Practice in a Divorce in Arizona.

Generally, in Arizona, a married couple have a community interest in the partnership interest one spouse holds in a professional partnership, like a law firm. In the case of Kent v. Carter-Kent, 235 Ariz. 309, 332 P.3d 56 (App. 2014), the Arizona Court of Appeals discussed issues about the valuation of the couple’s interest in a law firm. Christine Carter-Kent and Richard Kent were married for 15 years when Richard filed for a divorce. He was an attorney and a 50% shareholder in the law firm of Kent & Wittekind, P.C. The issues of this case involved the valuation of the community interest in the law firm and in a settlement, the law firm had obtained in the amount of $1,447,500 in a settlement in the Turner case. Christine always treated them as two assets in the divorce.

Both Christine and Richard agreed that the community had an interest in the law firm. That is, they agreed that Richard’s interest in the firm was a community property interest owned by both spouses and that the community interest had to be divided in the divorce. However, they disagreed on how to value that interest. The court held a two-day divorce trial on the issues in which Christine’s expert assessed the value at $920,350, while Richard’s expert placed the value at $701,000. In August 2009, the court entered an order that Christine and Richard were each entitled to 25% of the net proceeds recovered by the law firm in the Turner settlement. Richard contested this but his argument was rejected.

Two months later, the court entered a decree awarding Richard all of the interest in the law firm. The court ordered a $460,000 “equitable offset” for Christine’s share. It reserved jurisdiction to determine the community’s interest in the Turner settlement and the law firm’s value in light of the settlement and the costs incurred.

Hildebrand Law, PC | Voted Best of Our Valley in Arizona Foothills Magazine.

Hildebrand Law, PC | Voted Best of Our Valley in Arizona Foothills Magazine.

Christine asked the court to amend the decree to make the $460,000 a judgment in her favor. The court did this, and Richard began paying that judgment. Several months after that, Christine asked the court to determine the value of her interest in the settlement. Richard argued that the settlement was a law firm asset and that the couple’s interests in the law firm had been resolved in the earlier decree that Christine had not appealed. Christine moved for a new trial under Rule 83(A)(6) of the Arizona Rules of Family Law Procedure, saying that she had been deprived of her right to “collect her fair share” of the value of the law firm. The court rejected this, saying that Christine could not now claim that the settlement was an element of the law firm value since she had argued the opposite earlier. Christine appealed the denial of the motion for new trial.

The Court’s Ruling on Valuation of a Law Practice in a Divorce in Arizona

Valuing a Law Firm in a Divorce in Arizona.

Valuing a Law Firm in a Divorce in Arizona.

The Court of Appeals explained that the lower court initially intended to revisit the issue of the valuation of the law firm and the settlement and enter another order. That was why it had given Christine an equitable offset, rather than a judgment. When at Christine’s request the court made the equitable offset a judgment, it constituted a final determination of the value of the law firm and her interest in it. Christine argued that the August order (granting her 24% of the settlement) was “res judicata,” which means an earlier, controlling order. However, since the August order did not resolve all issues in the litigation, it was not final and therefore could not be res judicata. Rather it could be altered by the court at any time. When the court granted Christine’s motion to make the equitable offset a judgment in her favor, it amended the August order by entering a final valuation of the law firm, of which Christine’s portion was $460,000. Christine did not appeal that valuation and could not seek reconsideration of it in a motion for new trial.

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Kevin Park of Arizona Estate Planning Attorneys was just what I needed for my divorce. He was very approachable and personable. He was quick to recognize what I needed and provided it quickly and efficiently. I hope to never need a divorce lawyer again, but if I know anyone else who does, I will definitely recommend Kevin.
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21:20 02 Apr 18
I have worked with Hildebrand law for about 8 years. They are always ready to serve, provide guidance and give you a few options. When they provide you options they also take the time to walk you through the pros and cons of each and give you a recommendation of what is best, but will listen to you and support whatever course you choose after making and educated choice. I’d recommend them to my closest friends and feel Chris Hildebrand is now a friend to me.
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21:53 27 Feb 18
Despite the unfortunate situation I found myself in, Chris Hildebrand @ Hildebrand Law helped me maneuver every step with professionalism, expertise, and even a sensitivity that was an added bonus.Chris and his staff helped me even when I didn't know I needed the help. In other words. . . they made sure we did not leave anything undone. And in the rare instance we needed the expertise of another professional, Chris knew exactly who to recommend.Chris also knew, because of his experience, what to anticipate down the road of litigation. That meant we were better prepared to meet the challenges head on, which lead to a more equitable and fair outcome. I appreciated that Chris did his best to meet my every need in a timely fashion, even if I had a simple question that required only a phone call or e-mail or if we needed to talk face-to-face.I highly recommend Chris Hildebrand @ Hildebrand Law, PC.
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22:09 12 Sep 13

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