Facts: Husband and Wife, the parents of three children, divorced after nearly 18 years of marriage. At the time of the divorce, Wife was 42 years old, and Husband was 49.
The parties agreed to equal parenting time and child support. The trial court equally divided the $12.4 million-dollar marital estate. Alimony was the main issue on appeal.
During the marriage, Wife worked as the Chief Operating Officer for Husband’s medical practice, which grew to 70 employees at four locations. Wife earned an annual salary of $80,503 as COO of the practice, which salary was set by her.
During the divorce, Wife voluntarily resigned from her position as COO, which position was not filled after she left the medical practice.
As part of Husband’s expert analysis of the value of the medical practice, the expert determined that the normalized compensation for a COO in a comparable business would be $160,000 per year.
The trial court found that Wife was voluntarily underemployed because she only worked a few hours a week at $15 per hour despite having “skills far above this pay rate” and “the ability to work full time.” The trial court found Wife did not try to find other employment and had presented no proof “as to any reason she could not be working.”
Based on the business valuation expert’s determination of what a comparable COO would earn, the trial court determined that Wife had an earning capacity of $160,000 annually.
The trial court determined that Wife could obtain full-time employment earning $160,000 per year and adjusted Wife’s alimony in futuro to only $2000 per month.
Wife appealed, arguing that the trial court erred by grossly overestimating Wife’s earning capacity because Wife had never earned more than the $80,503 she made as the COO of the medical practice.
On Appeal: The Court of Appeals vacated the trial court’s ruling.
In determining the proper amount of alimony, Tennessee law requires courts to consider the relative earning capacity of each party.
One’s earning capacity is defined as one’s ability or power to earn money, given the person’s talent, skills, training, and experience. Thus, determination of a party’s earning capacity requires consideration of the parties’ circumstances and qualifications, including their age, past and present employment, education and training, and ability to work. Tennessee courts routinely consider a party’s previous earnings when determining their earning capacity.
The Court found that the evidence preponderates against the trial court’s finding that Wife has an earning capacity of $160,000 per year:
Here, the trial court principally relied upon the testimony of [Husband’s business valuation expert] in finding that Wife has an earning capacity of $160,000 per year. However, [Husband’s business valuation expert] did not base his opinion on an assessment of Wife’s personal qualification; instead, his opinion was based on data provided by industry Reasonable Compensation Reports, which he gathered in order to value [the medical practice].
Furthermore, the trial court expressly found that neither [party’s business valuation] expert was qualified to testify regarding Wife’s personal qualifications…. We also find it significant that [Husband’s business valuation expert] was qualified as an “expert in business evaluation” rather than a vocational expert.
Outside of the data provided by Reasonable Compensation Reports, which [Husband’s business valuation expert] appeared to exclusively rely upon in estimating “the industry standard salary for a COO,” there is nothing in the record to indicate that Wife could earn $160,000 per year. Rather, it is undisputed that Wife has never made more than $80,503 per year, which she earned while working as COO for Husband’s medical practice for approximately five years. Moreover, that was her only employment during the parties’ almost 18-year marriage. We also find it significant that the position of COO at [Husband’s medical practice] was not filled after Wife left the position, which indicates that Wife’s services as COO were not essential to the practice.
The Court vacated the trial court’s alimony award and several rulings related to the trial court’s finding of Wife’s earning capacity, such as Wife’s ability to pay 20% of the children’s private school tuition and extracurricular expenses.
Source: Levy v. Levy (Tennessee Court of Appeals, Western Section, August 12, 2024).
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