Facts: Husband and Wife divorced after 20 years of marriage. Wife worked as a realtor. Husband worked as a financial advisor. Together, they collected a substantial marital estate.

Husband provided financial services through a wealth management business where he was the sole owner. Husband was an independent contractor. His clients belonged to him. Most of his clients either followed him from his previous employment, were referred to him by existing clients, or met him through social connections.

Husband’s compensation came via a small percentage from direct commissions from product sales, 15% derived from ongoing commissions resulting from products Husband sold and continued to manage, and most compensation came from quarterly “advisory fees.”

Both parties hired expert witnesses to value Husband’s business.

Husband’s expert valued the business at $57,000. He said the business was “a personal goodwill business” with Husband as a “team of one.” Personal goodwill is not considered a marital asset and therefore cannot be included when dividing marital property. So, he determined the proper valuation method was the “net asset value” approach. Thus, the value of the cash, furniture, and equipment totaled $57,000.

Wife’s expert maintained that the “income approach” was the appropriate valuation method. He believed Husband’s business was salable, and that the sale would include “enterprise goodwill.” Husband would be selling “the access to the revenue stream … the client access.” The “income approach” appropriately captured this business goodwill. Using this approach, Wife’s expert valued the business at $398,000 after applying a 5% discount for lack of marketability.

The trial court determined that Wife’s expert valuation was “most accurate.” It valued Husband’s business at $367,000 and ruled that Wife was entitled to receive one-half of that amount in the division of the marital estate.

Husband appealed, arguing that the trial court erred in valuing the business.

On Appeal: The Court of Appeals affirmed the trial court.

Tennessee courts determine the value of a marital asset by considering all relevant evidence, and each party bears the burden of production. Depending on the business, the valuation may consider a lack of marketability discount, a discount for lack of control, and a control premium, if applicable, which should be relevant and supported by evidence.

Where the evidence of value is conflicting, the trial judge may assign a value that is within the range of values supported by the evidence.

Determining the value of a single-member LLC is not an exact science. There are many acceptable methods of valuation.

The Court found no error in the trial court’s analysis:

The trial court did not base its decision to use the income approach on the way Husband obtained his clients. Instead, it considered the reports and testimony by Husband’s and Wife’s experts regarding whether Husband’s trail income was salable. Wife’s expert opined that the court should consider enterprise goodwill in the valuation because Husband could sell access to his client list and, therefore, the opportunity to manage those clients’ assets, even if the clients would not be required to remain with the buyer. And Wife’s expert explained how he calculated and took deductions from the valuation based on the risks that would be involved in a purchase of the single-member LLC and its lack of marketability. Though Husband’s expert disagreed, the court found that Husband’s trail income could be sold. And in the face of these conflicting opinions regarding [the business’s] value, the trial court was free to select a value within the range of the values presented by the competent evidence.

Husband points to cases in which this Court has “been reluctant to allow enterprise goodwill to be divided as a marital asset upon divorce when the business involved is a sole proprietorship” as support for his argument that the trial court should have used the net asset value method. But the choice of the proper valuation method depends on the unique facts of each case. We recognize that, when the methodology or factual basis for an expert’s opinion is patently flawed, the courts can and should discount the opinion. But the opinion of Wife’s expert does not fall within that category. Her expert analyzed [the business’s] balance sheets and other financial documentation, interviewed Husband, cited legal and financial research, and explained each of the analytical steps in reaching its conclusion.

Finding that the evidence did not preponderate against the trial court’s valuation, the Court affirmed the trial court’s judgment.

Source: Garrett v. Garrett (Tennessee Court of Appeals, Eastern Section, June 30, 2025).

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