Hollis v. Hollis, 2022 Tenn. App.

In this case, the Tennessee Court of Appeals affirmed the trial court’s judgment that the husband’s “book of business” as a financial advisor for UBS was not a marital asset. “[T]he trial court properly identified and applied the most appropriate legal principles applicable to the decision, and the trial court’s decision was within the range of acceptable alternative dispositions.” The court of appeals also affirmed the trial court’s award of alimony “in futuro” was not an abuse of discretion. There was a discussion about “deferred payments” due to the husband from UBS, which was not decided at the court of appeals level. We do not digest the issues surrounding the alimony here but refer you to the opinion.

Background.

In this divorce case, the wife appealed the trial court’s judgment that the husband’s book of business was not a marital asset. The husband had been a financial advisor for UBS since 2008. The divorce was filed in April 2018. The question was how to classify the husband’s book of business, i.e., client relationships, assets under management, and income produced to manage those assets. On appeal, the wife cited, among other things, the husband’s discussions with Raymond James (to join it) as evidence that the book of business had definite value. The husband noted that UBS now took the position that a financial advisor who left UBS cannot accept any information from him or her. For that and other reasons, the husband contended that his book of business was neither a marital asset nor even property.

The court of appeals here took a side detour. In pointing out that the husband had not been forthcoming with his assets, the court of appeals noted that the husband “played semantics.” When asked about his deferred cash agreements with UBS, he first testified that he had none. Later, he admitted that he had notes and stock payments that he had deferred instead of taking them up front, referred to as “Strategic Awards.” “They are already earned, but you must be an employee when you collect them to receive them. They are marital assets.” However, the trial court also decided that the “ALFA” account, which does not include the notes, was future income and was speculative, so it was not a marital asset.

Later in the opinion, the court of appeals noted that the trial court ordered the notes to be received in the future by the husband should be divided equally between the husband and the wife and the wife’s portion be placed in a separate account in the wife’s name “at a brokerage firm of her choice.”

The court of appeals returned to the question of the book of business as a part of its background discussion. Assets under management earned what was known as trail income. That fund was used to pay the financial advisor and the umbrella organization, UBS. UBS (and Raymond James) and the husband agreed that the book of business was not owned by any of the three. UBS was the “custodian.” The husband, under another scenario, would be able to monetize his book of business by transferring the accounts to other UBS brokers and assisting in servicing those clients for five years. At the end of 2017, the husband came out under a covenant not to compete with UBS and could move to another firm to “monetize his book of business.”

The trial court found this similar to the Fuller case but distinguishable from there. In Fuller, the advisor admitted that his income-producing assets could be sold, and another advisor testified that there was a reasonable value for the court to place a value on those assets. There was no future income for the husband. The advisor in Fuller sold products, and the assets continued to generate income in the future whether the advisor did anything. Here, the husband’s clients may leave and go to another advisor at any time. Also, UBS’ current protocol “prohibits him from taking his client list, address and phone numbers with him like he did when he changed firms ten years ago.”

Additionally, the husband can retire, continue to transition, service the clients for five years, and continue receiving income. “The Court [trial court] finds the monetization of this before retirement to be more akin to an advancement which must be paid back with interest. After retirement, it is income paid for work that he transitions.”

Discussion:

The Supreme Court first addressed the issue of whether the trial court erred in ruling that the husband’s book of business constituted “future income” rather than marital property. “A trial court has wide discretion when classifying and dividing the marital estate, and its findings are entitled to great weight on appeal.” (Sullivan v Sullivan) So, unless the trial court’s decision were contrary to the evidence’s preponderance or an error in law, it would stand.

The abuse of discretion standard for Tennessee was indicated for this case. “An abuse of discretion occurs when a court strays beyond the applicable legal standards or fails to properly consider the factors customarily used to guide the particular discretionary decision.” (Lee Med., Inc. v. Beecher) Three factors should be considered: (1) whether the factual basis was supported by evidence, (2) whether the lower court (trial court) applied proper legal principles, and (3) whether the decision was in the range of acceptable dispositions. It did not allow the appellate court to substitute its judgment for that of the lower court.

Marital property in Tennessee included all real and personal property acquired by the parties and owned at the date of the complaint. It included income from any increase in value during the marriage. It also included the “value” of vested and unvested pensions accrued due to employment during the marriage. 

The wife argued two points regarding the husband’s book of business, giving rise to two intangible assets: (1) any potential recruitment bonus he might receive from a new firm; and (2) the unvested retirement benefit he will receive (“monetize”) if he retires from UBS’s ALFA program or a similar program from another firm.

You cannot sell an individual or assets, so you were assigned the right to earn income. The wife’s expert, Robert Vance, testified that there was intangible value to the book of business, including a recruitment bonus, retirement income, and the value of the assets under management. He noted that the client owned the assets under management, and they continued to produce income without the husband’s involvement. 

If the husband entered the ALFA program, he was paid to assist in transitioning his clients to the new advisor. The husband argued that the “book of business” is a misnomer. The goodwill can be monetized only in increased earnings and not existing marital property.

Under Tennessee law, professional goodwill was not a marital asset. It cannot be separately sold or pledged by the individual owners. In Fuller, the trial court found, affirmed by the court of appeals, that “[f]ather’s trail income generated by his ongoing management of his client’s accounts [at his financial planning practice] was also a divisible marital asset separate and apart from any goodwill of the business.” 

Fuller was instructive but distinct. In Fuller, the financial advisor sold products. In Fuller, the advisor was a sole practitioner, whereas he was part of a large firm, UBS. The husband must provide future services to generate income or value. The husband’s book of business was not akin to unvested retirement. The wife relied on Vance’s values of a $1.77 million recruitment bonus and $1.96 million in retirement interest. The wife noted that the husband did not present any expertise or value. The trial court has the discretion to accept or reject the testimony of a witness. “The Trial Court had a factual basis upon which to base its determination as to the classification of Husband’s book of business.” The Supreme Court found that the trial court’s decision had a factual basis supported by the evidence. The trial court did not abuse his discretion, and the book of business was not a marital asset. 

The Supreme Court continued to the husband’s appeal issues regarding alimony, equitable distribution, and legal fees. Consult the opinion for those issues.