Anatomy of a High-Value Divorce in Alabama

This case doesn’t break new legal ground, but it’s a good reminder of several of the principles that tend to come up in high-asset divorce cases in Alabama.

The case is Wright v. Wright, Case No. 2070509 (Ala. Civ. App. March 20, 2009). Divorce in Baldwin County after a 21-year marriage. The husband had achieved his goal of becoming a millionaire by age 35 and no longer worked full time. The wife had worked as a nurse until their first child was born in 1995, when the parties agreed that she would stay at home and care for the children. The husband had numerous affairs. The last, an 18-month relationship, came after he had confessed other affairs and received the wife’s forgiveness for them.

In addition to a division of the marital assets, the trial court awarded the wife sole physical custody of the children, $3,000 per month in child support, $2,000 per month in alimony, and a $10,000 attorney fee. After the husband’s post-trial motion was granted in part and denied in part, the husband appealed. The husband argued that the trial court erred (a) in granting child support of $3,000 per month, (b) in setting the value if his interest in a closely-held business at $500,000, (c) in excluding the husband’s criticism of the methodology of the wife’s expert business valuation witness, (d) in the court’s allocation of marital assets, and (e) in setting alimony at $2,000 per month.

The appeals court discussed these arguments in order, so let’s do the same. On the issue of child support, the husband argued that the trial court should have used the child support guidelines to set child support, which would have resulted in child support of less than $2,000 per month. The husband said the trial court should have based child support on the husband’s “take home pay” of $85,000 in 2006, but the appeals court pointed out that the husband’s income reported on the couple’s joint tax return was $574,000. Some, but not all, the difference was due to retained earnings in his closely-held corporation. The appeals court acknowledged that the general rule in other jurisdictions is to exclude retained earnings when the recipient is a minority shareholder, because the minority shareholder lacks the power to force those earnings to be paid. The appeals court said that its prior decisions had permitted the consideration of retained earnings allocable to a minority shareholder, however, so it did not find the trial court’s implicit inclusion of them to be in error. Moreover, said the appeals court, even after the exclusion of retained earnings the husband’s income reported on his tax return would still be significantly above the upper limit of the child support schedule. Note: the trial court and the appeals court were using the pre-2009 child support tables, with an upper limit of $120,000 on annual income.

The wife had testified without objection or criticism from the husband that her monthly expenses were $4,300 per month. “Accordingly, we conclude that the child-support award does “relate to the reasonable and necessary needs of the child[ren], taking into account the lifestyle to which the child[ren were] accustomed and the standard of living the child[ren] enjoyed before the divorce,” as well as the husband’s ability to pay for those needs. Dyas v. Dyas, 683 So. 2d 971, 973 (Ala. Civ. App. 1995).” Wright at 14.

The next issue was the valuation of the husband’s 25% interest in a closely-held corporation, Gulf Coast Office Products (GCOP). Both the husband and the wife introduced expert business valuation analysts. Although they agreed that the book value of the total enterprise was roughly $2.5 million, they disagreed on the fair market value of the husband’s minority interest. The wife’s expert said he used three methods to determine the fair market value of the enterprise, yielding values ranging from $1.7 million to $5.1 million. The wife’s expert initially failed to include any minority discount. On cross-examination, however, the wife’s expert said applying such a discount would lower the value of the husband’s interest from approximately $900,000 to approximately $650,000.

The husband’s expert defended his lower estimate of the value of the husband’s interest, about $300,000, primarily on the basis of the application of a marketability discount and a lack-of-control discount, both springing from the husband’s owning a minority interest in a closely held corporation.

The trial court, admitting that it was searching for a middle ground between the experts, valued the husband’s interest at $500,000 and awarded the wife half of that, $250,000, as her share of it.

The husband made his own attempt to point out problems in the methodology used by the wife’s expert, but the wife’s attorney objected to the husband’s testifying as if he were an expert witness, and the trial court agreed. In his appeal the husband argued that the trial court erred in setting the value of the husband’s interest as well as in barring the husband from testifying about the wife’s expert’s methodology. The husband cited Evidence Rule 701, which is designed to liberalize the rule about lay witnesses offering opinions. Nevertheless, the appeals court said the trial court was within its discretion to bar his testimony, particularly because the husband made no offer of proof about the nature of the testimony he would have offered.

On the final two issues, property division and alimony, the appeals court pointed out the husband’s resources, the wife’s financial needs, and the evidence in the record of the husband’s “flagrant and repeated misconduct.” In the words of the appeals court, “we conclude that the trial court’s division of the marital property, its allocation of the debts, and its award of periodic alimony were not inequitable.” Wright at 26. The appeals court affirmed the trial court. It denied the wife’s request for an attorney fee for defending the appeal.

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