Shadle – NAV Accepted by Divorce Court
In Shadle v. Shadle (108 PDDRR 102), a Bucks County divorce decision, the main issue was the valuation of an HVAC contracting business owned by the husband. The contracting business generated revenues from two primary sources: prepaid service contracts, and residential repair and replacement of HVAC systems. The company employed seven technicians, including the parties’ two adult sons. An ancillary issue was whether the husband had made an enforceable agreement with his sons to transfer the business to them upon his retirement.
On the latter issue, the trial court found no consideration for the promise made by husband to transfer the business to his sons. The trial court noted that each son had received adequate compensation for his services in the course of employment. The suggestion that the sons may have sacrificed other career opportunities in exchange for the promise was deemed speculative.
On the issue of valuation, there was a battle of experts. Wife’s expert considered three valuation approaches and concluded that the value of the business was $200,000. (The opinion does not reveal which approach(es) yielded this result.) The net asset approach, which is utilized when “liquidation is contemplated in the not-too-distant future,” as Wife’s expert explained, would yield a value of $130,000.
The testimony of Husband’s expert is not discussed at all in the opinion.
The trial court found that the fair market value of the HVAC business was equal to the NAV of $130,000, reasoning that “Husband will likely transfer the business to his sons rather than an independent buyer at some point in the future.” The trial court thus demonstrated a misunderstanding of valuation concepts, overlooking the fact that all parties contemplated an ongoing concern, not liquidation. It will be interesting to see whether the Superior Court of Pennsylvania reverses this erroneous decision, and whether, on remand, the issue of personal goodwill is raised.