Domestic Relations – Equitable Distribution – Valuation – Husband’s Business

Swaney v. Swaney (Lawyers Weekly No. 12-16-0007, 11 pp.) (Sam Ervin IV, J.) Appealed from Randolph County District Court. (Lee W. Gavin, J.) N.C. App. Unpub. Click here for the full-text opinion.

Holding: The valuation of the defendant-husband’s business could be based on the assumption that a covenant not to compete and an employment agreement would be included in a deal between a willing buyer and a willing seller.

We affirm the trial court’s equitable distribution order, including its valuation of defendant’s business.

The net value of a business includes goodwill, which must be valued and considered in determining the value of a business for purposes of equitable distribution. A widely accepted method for determining the value of a business’ goodwill is the price that a willing buyer would pay to a willing seller for that business.

Defendant’s expert, George Batten valued the goodwill of defendant’s business, Milestone Computer Solutions, LLC (MCS) using the “willing buyer, willing seller” method as “in the neighborhood of thirty thousand dollars” based upon a reasonable multiple of earnings accumulated during the time period that defendant had owned MCS. Plaintiff’s expert, Christy Smith testified that, given the execution of a noncompetition and employment agreement, she would be willing to buy MCS. The trial court based its valuation decision upon this testimony and valued MCS’s goodwill at $30,000.

Although defendant contends that, given the absence of any evidence tending to show that a noncompetition agreement and an employment agreement actually existed or would be made available, it was inappropriate for the trial court to rely on this approach in valuing MCS’s goodwill, we do not find this argument persuasive. On the contrary, the inclusion of such assumptions was necessary in order to fully reflect the value of the goodwill that defendant had accumulated as a result of his operation of the business, particularly given the absence of any indication that defendant intended to close or abandon MCS at less than its actual value.

Given that the trial court based its valuation of MCS’s goodwill on competent evidence and on a sound valuation method previously accepted by this court, its goodwill valuation method will not be disturbed on appeal.

We also affirm the trial court’s calculation of the value of MCS’s fixed assets.

Mr. Batten testified that, based upon the information contained in MCS’s books and records, the corporation’s fixed assets, consisting of office furniture, fixtures, and office equipment, had a total book value of $36,051.78. The trial court’s finding with respect to the valuation of MCS’s fixed assets was based upon this evidence.

Although Mr. Batten expressed the opinion that the actual value of MCS’s fixed assets might been lower than the value shown on MCS’s records given that this book value figure was calculated at a time when defendant did not own MCS and given that Mr. Batten had not observed sufficient fixed assets at MCS to support such a valuation, he had not obtained a listing of MCS’s fixed assets or performed an accounting of the fixed assets that were actually on hand and could not, for that reason, provide a more specific value for MCS’s fixed assets. Although this evidence raises questions about the validity of the net book value figure upon which the trial court relied, this conflict in the evidence involves a factual determination of the type for which the trial court, and not this court on appeal, is ultimately responsible.

Given that the record contains sufficient evidence to support the trial court’s valuation of MCS’s fixed assets, we have no basis for overturning the trial court’s resolution of this issue on appeal, even though the record also contains evidence from which the trial court could have reached a different conclusion.

Affirmed.