King v. King, 2022 Md. App.

In this divorce case, the Court of Special Appeals of Maryland affirmed the circuit court’s decisions of appeals from Eric King, including, among others, the business value and the incomes of the respective parties. The parties were married in 2004. The divorce filings commenced on Nov. 6, 2019.

A judgment of absolute divorce was entered on July 7, 2021, and Eric King filed a notice of appeal on July 8, 2021. At trial and pertinent to the appealed issues, the parties provided conflicting evidence regarding: “(i) whether Mr. King’s ownership interest in a family business was marital property; (ii) if it was, the value of that interest; and (iii) the total amount of Mr. King’s annual income.” To testify to these issues, Eric King called Bruce O’Heir, and the wife called Kristopher Hallengren, both CPAs with extensive experience in forensic accounting and business valuation. The circuit court’s findings largely depended on its expert testimony assessment.

The marital property determinations and the monetary award.

Marital property.

King contended the circuit court erred in concluding that his 75% ownership interest in Sea King VI LLC (Sea King) was marital property and had a value of $226,000. “Generally, whether an asset is a marital or non-marital property and, if it is, the asset’s value is a question of fact. A court’s findings as to these issues are reviewed for clear error. Flanagan v. Flanagan.”

King’s father, William King, owned interests in several business entities, including the King Family Trust, of which William King was a trustee. Eric King was a beneficiary of that trust and had received distributions from that trust. Eric King also owned a seafood market/carry-out and sit-down restaurant called “Sea King” in Ellicott City. The Sea King operation was on land owned by an entity William King owned. Eric King told the wife he intended to purchase the Sea King operation. In 2005, the Sea King entity was formed, with Eric King owning by the purchase of 25%. In 2006, William King transferred 50% to Eric King, giving him 75% interest. Eric King claimed his interests were gifts from his father. There was no documentary evidence of such. Eric King’s contentions were unpersuasive without evidence of gifts.

Generally, the burden of proof was on the party asserting property was marital in Maryland. However, the party claiming it was a gift “bears the burden to demonstrate ‘(1) donative intent [on the part of the donor]; (2) actual delivery by the donor; and (3) acceptance by the donee.’“ Richards v. Richards. Eric King mischaracterized the record. Documents show that Eric King purchased his original 25% interest. “Additionally, Ms. King testified that Mr. King told her that he intended to purchase all of his father’s interest in the Sea King restaurant and, in fact, purchased 75% of the business.” This was not rebutted at the circuit court. The Court of Special Appeals concluded the circuit court was not erroneous in finding that Sea King was marital property.

The value of Mr. King’s interest in Sea King VI.

The circuit court found that Eric King’s interest in Sea King of 75% had a value of $226,000. Eric King contended the circuit court erred and that the evidence showed that his interest had no value. The circuit court’s decision was reviewed for “clear error.” The evidence for value came entirely from the two experts. The experts discussed the three approaches to value and their own opinions on the value of the interest in Sea King. O’Heir testified that the most appropriate method was “book value.” He further explained that Sea King had a negative book value “because its debts were more than the value of its assets. These debts were largely owed, if not entirely, to William King or entities controlled by him.” 

Hallengren, the wife’s expert, agreed that there was negative book value but that the most appropriate valuation method for restaurants was the “market value.” Hallengren compared the company to comparable sales of nineteen restaurants, deducted interest-bearing debt, added back cash, and provided a discount for lack of marketability. He determined a value of $226,000 for the value of Eric King’s 75% interest. Per the Court of Special Appeals, “In summary, each expert provided well-reasoned testimony that, if credited by the fact-finder, would have supported his ultimate conclusion.” The circuit court found Hallengren’s valuation more reasonable than O’Heir’s. The Court of Special Appeals found the circuit court’s decision not to be erroneous.

Parties’ income.

The Court of Special Appeals went through the testimony on the income of the two spouses and the circuit court’s reasoning on its determination of the same. Of interest was the inclusion by the circuit court of trust distributions to Eric King to pay tuition for the children for private schools. The Court of Special Appeals affirmed that those distributions benefited Eric King and were appropriate inclusions in his income. As for the wife, the circuit court determined that because of the medical condition of one of the children, her hours of work were limited, and thus, her income was reduced. The Court of Special Appeals also affirmed that decision. [Ed. Note: The section on the parties’ income in the opinion is helpful to the valuation expert who may be called on to testify to the amount of income.]

Ed. Note: The Court of Special Appeals affirmed other divorce-related issues that were not particularly pertinent to the valuation expert but might be of interest to the attorney