Property Valuation and Rehabilitative Alimony Reversed in Shelbyville Divorce: Barnes v. Barnes

Facts: After 25 years of marriage, a five-day divorce trial, 15 witnesses, and 161 exhibits, the parties were divorced.The trial court divided the marital estate and awarded Wife alimony in futuro, i.e., permanent alimony, of $6000 per month. On a post-trial motion to alter or amend, the trial court, upon considering the Tennessee Supreme Court’s decision in Gonsewski v. Gonsewski, modified its previous award of $6000 per month in alimony in futuro to an award of $4300 per month in rehabilitative alimony for four years.

Wife appealed.

On Appeal: On the issues discussed below, the Court of Appeals reversed the trial court.

Property Valuation. The first issue is whether the trial court properly valued Husband’s dental practice.

Trial courts must place a reasonable value on marital property that is subject to division. The parties have the burden to provide competent valuation evidence. If the parties’ valuation evidence is conflicting, the trial court may place a value on the property that is within the range of the values presented.

Husband is the 100% owner of a dental practice consisting of two dentists and nine other full-time employees. Wife’s expert valued the dental practice at $678,179. Husband’s expert valued the practice at only $50,000. Husband’s expert also reduced the value of the practice by 15% due to lack of marketability.

The trial court ultimately valued the dental practice at $328,392, which evaluation included the 15% lack of marketability discount advocated by Husband’s expert.

Wife argued the trial court erred in applying a 15% lack of marketability discount to the valuation of the dental practice because there was no evidence Husband had any intention of selling the practice. The Court agreed, writing:

[W]e [] find that the trial court erred in applying a 15% discount for lack of marketability to the value of Husband’s interest in the dental practice…. The trial court’s valuation should not have been impacted by the lack of marketability of Husband’s interest, unless of course there was some indication that a sale of his interest was necessary or desirable. Because Husband had no intention of selling his interest in the corporation, the value of the business is not affected by the lack of marketability and discounting the value for non-marketability in such a situation would be improper. The effect of the trial court’s 15% discount for lack of marketability was that the trial court deducted $57,951 from the practice value to reach a final value of $328,392. Therefore, this same amount should be added back to the practice value, for a total practice value of $386,343.

Accordingly, the trial court’s valuation was reversed. Consistent with the trial court’s division of marital property, Wife was awarded one-half the value of the 15% discount, i.e., $28,975.50.

Alimony in futuro. Wife also appealed the trial court’s modification of its original award of permanent alimony to a subsequent award of rehabilitative alimony.

Alimony in futuro, also known as periodic alimony or permanent alimony, is intended to provide support on a long term basis or until the death or remarriage of the recipient. Such alimony may be awarded when the court finds that there is relative economic disadvantage and that rehabilitation is not feasible, meaning that the disadvantaged spouse is unable to achieve, with reasonable effort, an earning capacity that will permit the spouse’s standard of living after the divorce to be reasonably comparable to the standard of living enjoyed during the marriage, or to the post-divorce standard of living expected to be available to the other spouse, considering the relevant statutory factors and the equities between the parties.

Rehabilitative alimony is intended to assist an economically disadvantaged spouse in acquiring additional education or training which will enable the spouse to achieve a standard of living comparable to the standard of living that existed during the marriage or the post-divorce standard of living expected to be available to the other spouse. This type of alimony serves the purpose of assisting the disadvantaged spouse in obtaining additional education, job skills, or training, as a way of becoming more self-sufficient following the divorce.

After agreeing with the trial court’s conclusion that Husband’s earning capacity “far outstrips” that of Wife, the Court defined the issue presented: “The basic question, then, is whether Wife can generate enough income to provide a pre-divorce standard of living, or one comparable to Husband’s post-divorce standard of living.”Answering that question in the negative, the Court explained:

Wife simply cannot achieve, with reasonable effort, an earning capacity that will permit her standard of living after the divorce to be reasonably comparable to the standard of living she and Husband enjoyed during the marriage or to the post-divorce standard of living expected to be available to Husband. Thus, she cannot be rehabilitated within the meaning of the alimony statute….

[W]e find that the trial court abused its discretion in altering its original alimony award and modifying the award to $4,300 in rehabilitative alimony for four years. We hereby vacate the trial court’s amended order to the extent that it modified the original award, and we reinstate the award of $6,000 per month in alimony in futuro as per the original divorce decree.

Accordingly, the trial court’s alimony modification was reversed in the original alimony award reinstated.

Barnes v. Barnes (Tennessee Court of Appeals, Middle Section, April 10, 2014).

Information provided by K.O. Herston: Knoxville, Tennessee Divorce, Matrimonial and Family Law Attorney.

Posted by

K.O. Herston is a family-law attorney in Knoxville, Tennessee whose practice is devoted exclusively to family law, including divorce, child custody, child support, alimony, prenuptial agreements, and other aspects of family law.

Leave a Comment