Rothwell v. Rothwell, 2023

The Court of Appeals of Utah considered several issues on the husband’s appeal from the  district court’s ruling concerning the couple’s dissolution of marriage. This digest will cover  the appellate court’s opinion regarding the valuation of the husband’s businesses. Other issues, dealing with support and determination of the wife’s needs and attorneys’ fees, can be found by accessing the opinion accompanying this digest. 

The appellate court ruled that the district court did not exceed its discretion in valuing the  marital estate at the date of trial and in calculating the value of those assets. 

The husband filed a divorce action in June 2018. Jenea (the wife) and Shaun (the husband) were married  in 1992. “In 2008, Shaun founded iDrive Logistics (Logistics) and iDrive Supply Chain  Solutions (SCS).” Both businesses were very successful. 

The parties engaged expert Brad Townsend to value, among other things, the husband’s businesses for purposes of determination and division of the marital estate. “He opined that the value of Logistics was  $11,882,550 in 2018 and $13,840,775 in 2019 and that the value of SCS was $3,776,775  in 2018 and $930,550 in 2019.” 

He also opined that the value of Logistics should be reduced by the husband’s personal goodwill, which he determined to be 37.87% (of the total  goodwill). He explained that the value of SCS decreased between 2018 and 2019 because its “revenues and profits plummeted.” 

Townsend testified he used a projection SCS’ CFO, Chantale Smith, provided to him. She indicated that SCS would lose money over the next  several years. Townsend also testified that Smith’s projections could be impeached if the husband’s distributions increased from 2018 and 2019. “Shaun’s tax returns showed that  his distributions from SCS increased from $617,425 in 2018 to $791,699 in 2019.” 

Townsend also testified that the 2019 value would be a better indicator of value at the time of trial but indicated that two years had passed so that neither value might be accurate. The district court trial was held in 2021, so while choosing a valuation date of the date of trial, the district court apparently used two-year-old valuations of the businesses.

The husband’s separately engaged expert, Daniel Rondeau, also assessed the values of  the companies. He agreed with Townsend’s assessment of personal goodwill, but Rondeau  “tax-affected” the businesses by deducting from their value the “amount Shaun could expect  to pay in taxes if he sold them. Rondeau opined that the marital value of Logistics was  $6,835,569 and the marital value of SCS was $860,692.” The district court determined that  it should not “tax-affect” any marital asset in this matter as, even though “the tax consequence is calculable, an event triggering the tax consequence is too speculative.” 

The district court accepted Townsend’s 2019 valuation of Logistics of $13,840,775 as its  value at the time of trial. Since the president and vice president of Logistics were able to  secure contracts, the district court reduced Townsend’s personal goodwill in half, to 18.94%, bringing the Logistics value to $11,918,308. 

The district court found the SCS 2018 value to be more appropriate at the date of trial,  determining that Smith’s projections were impeached by the fact that distributions went up  in 2019, demonstrating that SCS made money and did not lose money in 2019. “[T]he court concluded that the 2018 valuation of $3,776,775 was more accurate than the lower 2019 valuation.” 

Valuation date 

The husband argued the district court abused its discretion by valuing the  marital estate as of the date of trial instead of the date of separation. A trial court had broad discretion to use an alternative date. However, if it used a date other than the date of divorce  decree, it must support its decision. “However, there is no corresponding requirement that  the court make findings of fact to explain its decision not to deviate from the general rule.” However, no case has been pointed out that departure from the general rule was an abuse of discretion. It was not an abuse of discretion to decline to depart from the general rule and, thus, value the marital estate as of the date of the trial or the date of the decree. 

Valuation of the businesses 

The husband took issue with the district court accepting  Townsend’s 2019 value for Logistics and his 2018 value for SCS, framed as using two  different valuation dates for the two businesses. “[T]he court assessed the value of the  marital estate as of the date of trial. It merely used the valuations provided by the experts in  assessing what that value might be.” If the district court decided that the 2018 value more accurately reflected the value at the trial date, then it was within its discretion to use that value. 

The appellate court took note of evidence in front of the district court including: Townsend did not know what had happened in the past two years and he used a company-prepared  projection indicating losses for several future years, but the husband’s distributions  increased for 2019, indicating no losses and impeaching the projections. The district court did find that the projections had been impeached, indicating that SCS’ value had actually  increased and was closer to the 2018 value. 

Goodwill 

The husband contested the district court determination that his personal goodwill  was only 18.9% of Logistics’ value and the district court’s value was speculative and not  based on the evidence. Personal goodwill was not subject to distribution in a divorce in Utah(Morroquin v. Morroquin). The appellate court will generally uphold the decision of the district court if it was within the range of values of all testimony established as long as the court’s findings were sufficiently detailed. (Wadsworh v. Wadsworth) Further, courts were not bound  to accept the testimony of an expert witness. This was true even when the testimony was unchallenged. Townsend determined a personal goodwill value of 37.87% based on an understanding of how Logistics acquired contracts for its consulting business. Rondeau concurred that the percentage was “reasonable.” However, Townsend also indicated that, if people other than the husband had key roles in obtaining contracts, that would temper his  assessment. The testimony and evidence indicated that there were others, including the VP,  who helped to close contracts. 

The district court determined that the husband did have personal goodwill but that it was not  as extensive as the husband had conveyed to Townsend. “The court found that some ‘information provided by Shaun and his management team to … Townsend’ was ‘faulty and inaccurate.’” The district court could have concluded that the husband had no personal goodwill or that it could not assign a value due to lack of credible evidence. 

The district court concluded that the husband did have some personal goodwill. To solve the conflict in  testimony, the district court decided to cut Townsend’s determination in half. The appellate  court cannot say that this was outside of the range of values determined from the evidence. The district court’s findings were sufficiently detailed to reach the conclusion that it did. The appellate court, therefore, did not disturb the district court’s ruling. 

Taxes 

The husband argued that the district court should have “tax-affected” the businesses  by reducing the values to take into account taxes that would be paid on sale of the  businesses. The district court declined to do this, noting that “an event triggering the tax  consequence is too speculative,” which is consistent with Utah law. (Wadsworth v. Wadsworth and Morgan v. Morgan) The sale of a business had tax consequences only when  sold. The husband stated they are not speculative here because they can be calculated. However, they were speculative because they might not ever happen at all and might be different if actually sold “many years down the road.” 

Noted also was that the husband was awarded the entire value of the businesses, which  was offset with other assets awarded to the wife so as to avoid any decision to have to sell  the assets and incur the tax consequences now.