In re Trapp, 2022 IL App

The primary issue, for valuation purposes, of this Illinois appeal of a divorce decree was the appeal court’s affirmation of the trial court’s decision to accept the valuation of the husband’s business valuation expert, Neil Gerber, as to the value of Trapp Properties Inc. Trapp Properties’ primary assets were two buildings. Gerber valued the original building from a July 30, 2018, broker opinion of value, a market analysis, by Justin Ferrill, which Gerber obtained from the husband. The new building was constructed in 2019, so Gerber used the cost of construction to determine the value of that building. Gerber personally inspected both buildings. Gerber testified that he often valued equity in real estate partnerships, for which he relied on appraisals or other estimates of value. 

“Gerber believed that his valuation was accurate, even though he relied on a market analysis [from Ferrill] rather than an appraisal to value the original building.” He determined the net equity value of Trapp Properties by taking the two values and subtracting the two mortgages. He thus determined a net equity value of $20,000. Gerber could not testify as to whether market conditions had changed in the year since the appraisal, but, if he were to revalue Trapp Properties at the date of the trial, he would use the current loan balance, which would result in a value of “somewhere between $55,000 and $60,000.” The trial court determined a value for Trapp Properties of $20,000.

The wife challenged a number of the trial court’s findings. This digest will focus primarily on the issue of the valuation of Trapp Properties. The wife argued the $20,000 value for Trapp Properties was “against the manifest weight of the evidence.” 

Valuation of Trapp Properties Inc.

In addition to dissenting to the $20,000 for Trapp Properties, the wife argued that the trial court should not have awarded the properties to the husband but that the properties should be ordered to be sold and the proceeds split evenly between the spouses. The husband argued that the valuation was not against the manifest weight of the evidence.

There must be competent evidence of value in order for the court to assign a value to an item of marital property. (In re Marriage of Abu-Hashim) There was no rule of law as to what was competent evidence. (In re Marriage of Hamilton) In this case, Gerber was not a real estate appraiser but a “Certified Business Appraiser” engaged to value both businesses in this case.

Gerber relied on the Ferrill market analysis to determine the value of the original building. That report was completed in 2018 for the purpose of obtaining financing on the first building. Since the new building was constructed in 2019, Gerber relied on the cost of construction, which he believed to be the best evidence of value at the time of his report. “Gerber testified that he often valued equity in real estate partnerships, relying on appraisals or other estimates of value from third parties. Gerber personally inspected both buildings and, while he relied on the information that he was provided, he found that information was reliable.” Based on this, the appeal court found that there was sufficient foundation for Gerber’s value determination and, thus, it constituted competent evidence.

Even though Gerber’s valuation was completed a year before trial, “it was not error for the trial court to rely on his valuation, when it was the only expert valuation before the court.” Trial delays were not the fault of Gerber. First, the wife asked and received a continuance to obtain a new attorney. Second, the trial court shut down because of COVID-19. Also, the wife had a competing valuation of Ray Trapp Electric Inc. that she noted was less than Gerber’s value. “It is reasonable to believe that she made a strategic choice to not get a competing valuation of Trapp Properties, Inc.” Thus she cannot complain as to the disposition of that asset by the court. The bank statements the wife offered were not competent evidence, and they conflicted with the 2018 appraisal offered to the bank that showed the value of the whole property (i.e., both buildings together) would be $1,250,000. “While a more current valuation would have been useful, due to the circumstances of the delay and the wife’s failure to seek her own valuation, we cannot say that it was against the manifest weight of the evidence for the trial court to accept Gerber’s valuation.”

The trial court’s distribution of the business to the husband was not an abuse of discretion, whatever value was determined at the date of the trial. The appeal court noted that, because of further payment of the mortgages, the value of Trapp Properties at the date of trial should be $51,454 divided equally between the parties.