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Atherton v. Atherton

Court of Appeals of Arkansas, Division IV

April 11, 2018



          The Brad Hendricks Law Firm, by: Lloyd W. Kitchens, for appellant.

          Short Law Firm, by: Lee D. Short, for appellee.

          KENNETH S. HIXSON, Judge

         Appellant David Atherton and appellee Cynthia Hastings (formerly Atherton) were married in 2002 and were divorced by a decree entered on May 24, 2017. On appeal from the divorce decree, David argues that the trial court erred in determining that his business, Gate Operators Plus, Inc. (Gate Operators), has a value of $175, 000. David contends that Cynthia presented no evidence as to the fair market value of the business and that the trial court's valuation was arbitrary. We affirm.

         This case arose after David filed a complaint for divorce on August 8, 2016. Both before and during the marriage Cynthia was employed by Essick Air Products, Inc. Cynthia has a retirement account, and the marital portion of the account has a value of $122, 000. David owns and operates Gate Operators, which he has owned since 2010. Gate Operators is a wholesale distributor of motors to operate gates, and David runs the business from an office he rents from a fence company. The parties acquired a home during the marriage. They have one child, who was born in 2005.

         After these proceedings began, the parties stipulated to joint custody of the child, with neither party paying child support. The parties also reached an agreement regarding the division of their personal property. The remaining issues for trial pertained to the distribution of the parties' remaining assets, which consisted of Gate Operators, the marital home, and Cynthia's retirement account.

         David testified at trial. During his testimony, he introduced an appraisal that valued the marital home at $280, 000. Although David acknowledged that the house was in need of some repairs, he thought it was worth $280, 000 as is. David introduced documentation that the principal balance owed on the mortgage was $126, 000.

         David also testified about his business, Gate Operators. He introduced the business's tax returns for the years 2013 through 2016. According to the tax returns, the business had a net loss of $21, 593 in 2013; a net loss of $3619 in 2014; a net profit of $6298 in 2015; and a net profit of $14, 474 in 2016. David testified that a December 31, 2016 balance sheet showed total equity in the business to be negative $3037.

         David testified that the inventory of the business averages around $50, 000, but that there is a loan against the inventory in an approximately equal amount. He further testified that in 2016 the business paid him a salary of $52, 000. The business also paid for his cell phone, his gas and maintenance for his car and truck, and for some meals. The tax documents from 2016 showed these annual expenses to be $9400, $5300, and $2600.

         David testified that personal relationships are important in his business, and that if he sold the business he would not be able to transfer his personal goodwill to the buyer. David stated that Cynthia thought the business was worth more than it actually is and that he was willing to give her the business for free. He stated that he wanted half of the equity in the marital home and half of the marital portion of Cynthia's retirement account, but that he was willing to give Cynthia the business with no offset related to those assets. He stated that, if he did that, he could start a new business based on his personal relationships and goodwill.

         David was also questioned about financial statements he signed in 2015 and 2016, wherein David provided information about his assets in applying for bank loans. On each of these financial statements, David represented that Gate Operators was a nonmarketable security with a value of $375, 000. David testified that he arrived at that figure with no advice from anyone else, including his accountant, and that it was "just basically a guess." David indicated that he had no idea what the true value of the business was but that he could not sell it for $375, 000. He testified that he put an estimated value of $375, 000 on the financial statements because he was told he "needed to have something there" for the loan documents. He further indicated that the $375, 000 value was derived from his personal goodwill.

          John Rogers, a retired CPA, testified that he prepared the tax returns for Gate Operators from 2010 through 2013. During that time, Mr. Rogers had the opportunity to review the assets and liabilities of the company. However, Mr. Rogers testified that he was not qualified to give an opinion as to the value of the company. Mr. Rogers did, however, give the opinion that the marketability of the business would be "just whatever you could sell the assets for and pay off the bills." Mr. Rogers indicated that the goodwill in Gate Operators was the personal goodwill of David Atherton, and that without David there would hardly be any goodwill left in the company.

         Cynthia testified that the parties' marital home needed extensive repairs estimated at $30, 000. Cynthia stated that, deducting the cost of repairs from the appraised value of $280, 000, she thought the house was worth $250, 000. Cynthia also stated that she had been paying on the mortgage since the ...

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