J-A08012-17
2017 PA Super 218
KATHY M. CARNEY : IN THE SUPERIOR COURT OF
: PENNSYLVANIA
:
v. :
:
:
DONALD R. CARNEY :
:
Appellant : No. 2474 EDA 2016
Appeal from the Decree July 1, 2016
In the Court of Common Pleas of Monroe County
Domestic Relations at No(s): No. 793DR10 7123CV10
BEFORE: PANELLA, J., LAZARUS, J., and STEVENS, P.J.E.*
OPINION BY STEVENS, P.J.E.: FILED JULY 11, 2017
This is the second appeal to this Court in the divorce proceedings of
Appellant Donald R. Carney (“Husband”) and Appellee Kathy M. Carney
(“Wife”). After remand, Husband again appeals the trial court’s order of
equitable distribution, arguing inter alia, that the trial court abused its
discretion in valuing the business Husband established during the parties’
marriage and in modifying Wife’s alimony pendente lite (“APL”) award. We
affirm in part, reverse in part, and remand for proceedings consistent with
this opinion.
The parties married on April 3, 1986; after twenty-three years of
marriage, the parties separated on February 5, 2010. No children were born
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*
Former Justice specially assigned to the Superior Court.
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of the marriage. During the marriage, Husband founded Brothers Auto
Transport (“Brothers”), a company that picks up new and used vehicles and
transports them throughout the country. As of the date of the parties’
separation, Brothers was a thriving business with average gross sales of
approximately $9 million each year and a fleet of forty trucks.
At one point, Wife worked at Brothers, assisting with administrative
tasks. Wife’s highest level of education was finishing eleventh grade. Wife
no longer works due to health problems, including rheumatoid arthritis,
lupus, and Raynaud’s Syndrome, which affects her hands. Wife is
responsible for the care of her elderly mother and her intellectually disabled
brother. Following the parties’ separation, Husband was required to pay
Wife $4,942.00 each month in APL and also pay for her health insurance.
In the equitable distribution proceedings of the divorce litigation, the
key disputed issue was the valuation of the trucking business. Each party
retained two separate experts: 1) an asset valuation expert to value
Brothers’ trucks, trailers, and other tangible property, and 2) a business
valuation expert to calculate the overall value of the business itself. We
note the parties also offered revised valuations of Brothers’ assets and its
overall value.1 Husband’s experts employed an income-based approach and
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1
We note that Wife’s original asset valuation expert died suddenly before
the master’s hearing. After Wife retained a second asset valuation expert to
testify, she revised her valuation of Brothers to incorporate the new expert’s
valuation of Brothers’ truck fleet.
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valued Brothers at $1,000,000.00. Wife’s experts employed an asset-based
approach and valued Brothers at $1,978,328.00. On June 20, 2012, the
Divorce Master issued a report and recommendation, finding Wife’s valuation
experts to be credible and Wife’s proposed valuation for Brothers to be most
reliable. However, the Master never explicitly stated in his report the
specific value he adopted for Brothers.
Husband filed exceptions to the Master’s determination regarding the
valuation of Brothers. The trial court adopted the Master’s recommendation
to use Wife’s proposed value for Brothers, but did not explicitly value the
business in its discussion of this specific issue. However, in its decision, the
trial court later indicates that it valued Brothers at $3,336,134. On February
15, 2013, the trial court entered a final divorce decree that incorporated the
property division.
On appeal, this Court found the trial court’s valuation of Brothers was
“wholly unsupported by the record” as that specific figure was never offered
by Wife’s expert as a proposed value for Brothers, but instead was a
proposed valuation of the truck fleet that did not account for the company’s
liabilities and obligations. Carney v. Carney, 843 EDA 2013, at *6
(Pa.Super. November 19, 2013) (unpublished memorandum). Moreover,
Wife had withdrawn that figure from consideration after retaining her asset
valuation expert and submitting revised valuations. As a result, this Court
found that the trial court had abused its discretion in valuing Brothers, which
in turn, affected the overall equitable distribution award. Thus, this Court
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remanded the case, directing the trial court to revisit the issue of Brothers’
valuation and reconsider the entire equitable distribution award in light of
this new value.
After remand, the parties stipulated that the trial court could evaluate
all equitable distribution issues based upon testimony and evidence
presented at the previous evidentiary hearings. In addition, Wife filed a
petition to modify her APL award. On January 25, 2016, the trial court held
a hearing to allow the parties to introduce additional evidence to supplement
the record.
On July 1, 2016, the trial court entered an order and opinion setting
forth its equitable distribution award that divided the marital estate in a
50/50 ratio. The trial court found Wife’s valuation experts most credible and
adopted their valuation of Brothers at $1,978,328.00. To avoid the
liquidation of Brothers, the trial court distributed the auto carrier business
solely to Husband. To equalize this distribution, the trial court awarded the
marital residence (valued at $100,400.00)2 and the marital 401(k) account
(valued at $331,620.00) to Wife and ordered Husband to pay Wife
$6,761.95 each month, interest free, for ten years. The trial court also
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2
While the marital residence has a fair market value of approximately
$244,400.00, it is encumbered by a lien of approximately $150,000.00,
which was utilized by the parties in 2006 to add improvements to the
property, including a garage, a putting green, a pool, a pool house, a
gazebo, two waterfalls, and landscaping.
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divided less valuable assets among the parties. Moreover, the trial court
granted Wife’s petition to modify APL and increased her award to $12,000
each month. Husband filed a timely appeal and a concise statement of
errors complained of on appeal.
Husband raises the following issues for our review:
1. Did the lower court commit an error of law and/or abuse its
discretion by accepting Wife’s expert’s “calculated value” of
the marital business which relied upon an adjusted asset
approach rather than a fair market value which considers the
ongoing concern of the marital business?
2. Did the trial court commit an error of law and/or abuse its
discretion in failing to tax effect the value of the marital
business?
3. Did the trial court commit an error of law and/or abuse its
discretion by entering an equitable distribution award
calculated upon an improper value of the marital business?
4. Did the trial court commit an error of law and/or abuse its
discretion by awarding alimony pendente lite to Wife based
upon Husband’s post-separation income without considering
Wife’s needs?
Husband’s Brief, at 4.
Our standard of review in reviewing a trial court’s equitable
distribution order is as follows:
[a] trial court has broad discretion when fashioning an award of
equitable distribution. Our standard of review when assessing
the propriety of an order effectuating the equitable distribution
of marital property is whether the trial court abused its
discretion by a misapplication of the law or failure to follow
proper legal procedure. We do not lightly find an abuse of
discretion, which requires a showing of clear and convincing
evidence. This Court will not find an “abuse of discretion” unless
the law has been overridden or misapplied or the judgment
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exercised was manifestly unreasonable, or the result of
partiality, prejudice, bias, or ill will, as shown by the evidence in
the certified record. In determining the propriety of an equitable
distribution award, courts must consider the distribution scheme
as a whole. We measure the circumstances of the case against
the objective of effectuating economic justice between the
parties and achieving a just determination of their property
rights.
Moreover, it is within the province of the trial court to weigh the
evidence and decide credibility and this Court will not reverse
those determinations so long as they are supported by the
evidence. We are also aware that a master's report and
recommendation, although only advisory, is to be given the
fullest consideration, particularly on the question of credibility of
witnesses, because the master has the opportunity to observe
and assess the behavior and demeanor of the parties.
Morgante v. Morgante, 119 A.3d 382, 386–87 (Pa.Super. 2015) (quoting
Childress v. Bogosian, 12 A.3d 448, 455–56 (Pa.Super. 2011)) (internal
citations and quotation marks omitted).
First, Husband challenges the trial court’s decision to adopt Wife’s
experts’ methods for the valuation of Brothers. Specifically, Husband argues
that his experts provided a more accurate valuation of Brothers using an
income-based method, which he characterizes as a generally accepted
standard of business valuation. Husband criticizes Wife’s experts for using
an asset-based methodology, which Husband characterizes as a subjective
methodology that did not assess the fair market value of the business.
We begin by emphasizing that “[t]he Divorce Code does not set forth a
specific method for valuing assets, and consistent with our standard of
review, the trial court is afforded great discretion in fashioning an equitable
distribution order which achieves economic justice.” Mundy v. Mundy, 151
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A.3d 230, 236 (Pa.Super. 2016) (citation omitted). In valuing marital
assets, “[t]he trial court must exercise discretion and rely on the estimates,
inventories, records of purchase prices, and appraisals submitted by both
parties.” Smith v. Smith, 904 A.2d 15, 21–22 (Pa.Super. 2006). However,
this Court has consistently held that, “[i]n determining the value of marital
property, the court is free to accept all, part or none of the evidence as to
the true and correct value of the property.” Mundy, 151 A.3d at 236
(quoting Smith, 904 A.2d at 22).
While Husband argues that the trial court should have viewed his
experts’ testimony utilizing an income based valuation as the preferred
valuation, we decline to adopt this protocol as the exclusive method for
determining business valuation. Our precedent requires that the trial court
be given great discretion to evaluate the parties’ valuation methods and
determine which is most reliable. Similarly, although Husband criticizes the
testimony of Wife’s expert witnesses who utilized a different asset-based
valuation method, Husband is asking this Court to substitute his viewpoint
for the credibility findings of the divorce master and the trial court. We
reiterate that we defer to the factfinders’ discretion in weighing the evidence
and assessing the credibility of the witnesses.
Moreover, we reject Husband’s suggestion that Wife’s experts’
valuation method was inadequate to accurately calculate the value of the
parties’ trucking business. Wife’s business valuation expert, David E.
Coffman, CPA, ABV, CFF, CVA, who is a certified public accountant as well as
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certified business evaluator by the American Institute of CPAs, testified as to
his extensive experience, having valued approximately 500 businesses,
including five or six trucking companies. Coffman discussed various
methods of valuation and explained that he felt an asset-based valuation
method would most accurately calculate Brothers’ valuation as the trucking
company’s fleet of auto carrier trucks was particularly valuable and would
hold its value. When asked why he did not use an income-based approach
as employed by Husband’s experts, Coffman rejected that approach as he
explained that it tends to overvalue companies by not accounting for
whether that business is actually operating efficiently.
While Husband asserts that Wife’s experts failed to account for the
business’s fair market value, this argument is belied by the record. Coffman
provided a thorough explanation of how he analyzed comparable market
sales by utilizing a database for the specialized freight trucking industry
which reported on actual sales of auto carrier truck fleet businesses. In
addition, Coffman performed his own valuation of the truck fleet by
consulting objective market data for each of the individual trucks in the fleet.
After accounting for depreciation of the operating equipment over time,
Coffman calculated the fleet value to be approximately $3.376 million.
Coffman’s valuation of the truck fleet was consistent with the valuation
of Wife’s asset-valuation expert, Barry Rudiger, owner of East Coast Truck &
Trailer, a company with annual sales of auto transport trucks of $35 million
and a truck inventory worth $7 million. The divorce master was “extremely
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impressed” by Rudiger’s expertise and his “methodical” valuation method in
using objective data from NADA guide resources to value each truck in
Brothers’ fleet with their specific Vehicle Identification Number (VIN).
Master’s Report, 6/20/12, at 7. Consistent with our precedent above, the
trial court was free to give weight to the master’s report, particularly with
respect to witness credibility, as the master had the opportunity to observe
and assess the behavior and demeanor of the parties. Morgante, supra.
As the trial court’s findings are supported by the evidence, we cannot find
that the trial court abused its discretion in adopting Wife’s valuation method
for the Brothers auto transport business.
Second, Husband argues that the trial court erred in refusing to
consider the tax effect of awarding the parties’ auto transport business
solely to Husband. The trial court summarily dismissed this argument,
explaining that it was not required to apply a tax effect value to any of the
marital assets as there was no evidence that the parties intended to sell any
of the assets. Trial Court Opinion, 7/1/16, at 11, n. 3. As a result, the trial
court assigned the entire trucking business to Husband and equalized this
distribution by requiring Husband to compensate Wife through a monthly
payment of $6,761.95 each month, interest free, for ten years. This
calculation was based on Husband’s receipt of the full equity value of
Brothers without consideration of costs associated with a potential sale of
the business.
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The Divorce Code lists eleven relevant factors in an equitable
distribution analysis, including the tax ramifications and expenses associated
with the sale of each marital asset. 23 Pa.C.S.A. § 3502(a). Section
3502(a) provides, in pertinent part:
3502. Equitable division of marital property
(a) General rule.—Upon the request of either party in an action
for divorce or annulment, the court shall equitably divide,
distribute or assign, in kind or otherwise, the marital property
between the parties without regard to marital misconduct in such
percentages and in such manner as the court deems just after
considering all relevant factors. The court may consider each
marital asset or group of assets independently and apply a
different percentage to each marital asset or group of assets.
Factors which are relevant to the equitable division of marital
property include the following:
***
(10.1) The Federal, State and local tax ramifications associated
with each asset to be divided, distributed or assigned, which
ramifications need not be immediate and certain.
(10.2) The expense of sale, transfer or liquidation associated
with a particular asset, which expense need not be
immediate and certain.
23 Pa.C.S. § 3502(a)(10.1), (10.2) (emphases added).
In an analogous case, Balicki v. Balicki, 4 A.3d 654 (Pa.Super.
2010), this Court upheld the trial court’s equitable distribution order which
deducted tax ramifications and sale expenses from the valuation of a
husband's insurance agency business before assigning the asset solely to the
husband. Consistent with the statutory language in Section 3502, this Court
rejected the argument that tax ramifications and expenses associated with
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the sale, transfer, or liquidation of a marital asset are only relevant in an
equitable distribution determination if a sale of the asset is likely.
Specifically, this Court provided that:
[this argument] violates the clear directive from the legislature
to consider the tax ramifications and expense of sale, which
“need not be immediate and certain.” ... It is crystal clear that
the Legislature intended to stop the practice of the lower courts
analyzing the prospect of sale of an asset [.] ... We believe the
Legislature intends the assets simply be given the value they
would have at distribution after deducting every expense
necessary to achieve liquidation[.]...
Wife also argues, correctly, that the statute requires us only to
consider the tax ramifications and expense of sale along with
numerous other listed factors, but the Divorce Code does not
make a deduction for them mandatory. However, when we
consider the tax ramifications and expense of sale associated
with the marital interest in the insurance agency, we are
convinced that deducting them is the fair and just method for
valuing the insurance agency. Pursuant to our Equitable
Distribution Award, Wife will receive $405,557 cash, without any
tax consequences or other expense. This will be the largest asset
that Wife will receive. The marital interest in the insurance
agency is the largest asset Husband will receive, but it is a much
different type of asset than cash. Husband cannot properly
convert the marital interest in the insurance agency to cash
without finding a potential purchaser, negotiating a written
agreement containing the terms and conditions of the sale,
consummating the sale and then paying income tax due as a
result of the sale. Husband may incur expense of sale other than
income tax, such as a broker's commission, finder's fee, attorney
fees and accountant fees. Hence, Wife will have access at no
cost to her largest asset, cash, while Husband's access to the
cash value of his largest asset involves a potentially difficult and
clearly costly process. Therefore, deducting the tax ramifications
and expense of sale from the marital value of the insurance
agency is certainly a fair way to divide this asset[.]
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Id. at 663–64 (citations omitted). Moreover, the Balicki Court also pointed
out that the husband might be forced to sell the insurance agency, given his
court-ordered obligation to make a large cash payment to his wife within one
year. See id.
In the same manner, the equitable distribution order in this case
provides Husband with the entire auto transport business, which cannot be
converted to cash without incurring significant tax liability and expenses
associated with the sale process. In comparison, Wife will receive monthly
payments of cash without equivalent expenses. While the trial court avoided
considering the tax implications and expenses associated with Husband’s
need to sell Brothers in the future, this Court clearly held in Balicki that the
tax ramifications and expenses associated with the sale of a marital asset is
a relevant consideration whether a sale is likely or not. See id. at 663; see
also 23 Pa.C.S. § 3502(a)(10.1), (10.2). Therefore, the trial court erred in
failing to consider evidence related to the potential sale of the auto transport
business before assigning the asset to Husband.
Lastly, Husband argues that the trial court erred in modifying Wife’s
APL award. Specifically, Husband claims that the trial court’s award is much
greater than Wife’s actual needs and results in a “windfall” to Wife.
We review APL awards under an abuse of discretion standard.
Haentjens v. Haentjens, 860 A.2d 1056, 1062 (Pa.Super.
2004). APL is “an order for temporary support granted to a
spouse during the pendency of a divorce or annulment
proceeding.” 23 Pa.C.S.A. § 3103. APL “is designed to help the
dependent spouse maintain the standard of living enjoyed while
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living with the independent spouse.” Litmans v. Litmans, 449
Pa.Super. 209, 673 A.2d 382, 389 (1996). Also, and perhaps
more importantly, “APL is based on the need of one party to
have equal financial resources to pursue a divorce proceeding
when, in theory, the other party has major assets which are the
financial sinews of domestic warfare.” Id. at 388. APL is thus
not dependent on the status of the party as being a spouse or
being remarried but is based, rather, on the state of the
litigation. DeMasi v. DeMasi, 408 Pa.Super. 414, 597 A.2d
101, 104–105 (1991). Alimony, in contrast, is terminated upon
remarriage or cohabitation. Id. at 104–105; see also 23
Pa.C.S.A. § 3706. Since, however, the purpose of APL is to
provide the dependent spouse equal standing during the course
of the divorce proceeding, it does not come with the “sanction”
of Section 3706. DeMasi, at 104–105. “APL focuses on the
ability of the individual who receives the APL during the course
of the litigation to defend her/himself, and the only issue is
whether the amount is reasonable for the purpose, which turns
on the economic resources available to the spouse.” Haentjens,
at 1062; see also DeMasi, at 105.
Childress, 12 A.3d at 463 (quoting Schenk v. Schenk, 880 A.2d 633, 644–
45 (Pa.Super. 2005)).3
Moreover, in reviewing a party’s request for a modification of the APL
award, courts must consider the following:
In ruling on a claim for alimony pendente lite, the court should
consider the following factors: the ability of the other party to
pay; the separate estate and income of the petitioning party;
and the character, situation, and surroundings of the parties.” An
award of alimony pendente lite may be modified or vacated by a
change in circumstances.... It is the burden of the party seeking
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3
This Court has emphasized that a dependent spouse may continue to
receive APL through an appeal (including any remand) concerning matters of
equitable distribution until a final order has been entered. Schenk v.
Schenk, 880 A.2d 633, 647 (Pa.Super. 2005).
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to modify an order of support to show by competent evidence
that a change of circumstances justifies a modification.
Childress, 12 A.3d at 463 (quoting Busse v. Busse, 921 A.2d 1248, 1255
(Pa.Super. 2015) (internal citations omitted)).
In light of this precedent, we find the trial court’s modification of Wife’s
APL award was justified by competent evidence. Wife testified that her sole
income is the APL award, which was previously set at $4,942.00 each
month. However, Wife argues that this award is inadequate to meet her
needs as her monthly expenses are approximately $5,800.00 each month.
In comparison, Wife’s expert, Mr. Coffman, reviewed Husband’s financial
information and calculated his 2014 annual net income to be $680,352.00
(monthly net income of $56,969.00). Although the trial court noted that the
support guideline formula in Pa.R.C.P. 1910.16-4 suggested that Wife be
awarded $22,227.00 in APL each month, it found this amount was excessive
under the circumstances as Wife did not testify to any additional expenses or
needs. Instead, the trial court modified Wife’s APL award to $12,000.00
each month, which it deemed appropriate to allow Wife to live independently
and to provide her with the resources to litigate this divorce action. As we
find this award to be reasonable, we reject Husband’s claim that the trial
court abused its discretion in modifying Wife’s APL award.
For the foregoing reasons, we affirm the trial court's decree in all
respects except for its failure to account for the costs associated with the
potential sale of Brothers. Upon remand, we direct the trial court to hold a
hearing to assess both the tax ramifications and expenses associated with
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the potential sale of the auto transport business and reevaluate its equitable
distribution award accordingly.
Decree affirmed in part and reversed in part. Case remanded for
proceedings in accordance with this decision. Jurisdiction relinquished.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 7/11/2017
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