Order to Sell Company Upheld
Order to Sell Company Upheld
Husband and Wife signed a Postnuptial Agreement (PNA) that converted Husband’s separate property company to community property and gave each of them 50% interest in the company. The PNA included provisions for valuation and a 50/50 division of their assets if they got divorced. If they could not agree on the value of an asset, they would each have it appraised. If the 2 appraisals were within 10% of each other, the 2 appraisal values would be averaged. If the appraisals were more than 10% apart, then the 2 appraisers would choose a 3rd appraiser whose appraisal would be averaged with the appraisal that was closer in value “and the resulting value shall be used as the fair market value.”
Wife’s appraiser valued the company at $72.28 million. Husband’s appraiser valued the company at $30.49 million. The 3rd appraiser valued the company at $50.52 million. So, under the PNA, the average of the 2 closer appraisals was $40.508 million.
None of the appraisals considered the effect of contractual bonuses due to employees or taxes if the spouse who was awarded the company decided to sell it. And, after the 3rd appraiser’s value was submitted, Wife’s appraiser reduced her appraisal to $65.84 million, bringing her appraisal closer to the 3rd appraisal. If Wife’s revised appraisal were averaged with the 3rd appraisal, the fair market value of the company would be $58.181 million.
At trial, Husband asked that the company be sold. Wife testified that she did not want the company, but she did not want a court-ordered sale if it would result in a reduced price; she asked that the judge award the company to Husband valued at $59.181 and she be awarded other community property of an equivalent value. The judge awarded each spouse 50% of the company and ordered it to be sold with the net sales proceeds split evenly between them.
Wife appealed several parts of the trial judge’s property division, including the order that their companies be sold to the highest bidder. On appeal, Husband argued Wife’s appeal should be dismissed because she accepted the benefits of the trial judge’s ruling by, among other things, invoking the Decree and its award of her interest in the company. Husband argued that Wife asserted at a post-divorce shareholder’s meeting that a PNA shareholder tie-breaker voting agreement was no longer valid and thus the company officer chosen in the agreement could not cast deciding votes. To prevent Wife from appealing the trial judge’s order because she accepted the benefits of that order, Husband was required to show how her actions prejudiced him. Husband failed to show how Wife’s actions prejudiced him. A potential, but unproven, drop in the company’s value did not bar Wife’s appeal because Husband did not show how her refusal to vote for Bylaws amendments and her assertion that the PNA shareholder tie-breaker voting agreement had expired would interfere with the distribution of property under the Decree.
Wife argued on appeal that the trial judge’s order to sell the company was error because their PNA did not authorize sale of the company. The appellate court decided that although the PNA did not authorize sale of any property as a means to determine value or to distribute the community estate, both Husband and Wife had agreed to sell other community property and divide the net proceeds, notably their $10 million house and $4 million condo. Early in the year-long divorce case, Husband opposed selling the company, but at trial he thought selling the business was the best plan for him and Wife and the key employees to reap the benefit of their long-time work in the business. He and the other key employees were close to retirement age, a purchaser would want them to stay on a few years to assist in transition to new ownership, so the time was right to sell. Also, the appraisals had many inconsistencies, including what data to use, what size of businesses to compare to the company, how to account for and remove the spouses’ goodwill from the valuations, and how to account for $5.8 million in profits from a prior year. Each of the appraisal inconsistencies yielded differences in value of several million to over $10 million. The actual price a purchaser would pay followed a different formula, which would make the sales price well below the appraised values.
Neither Husband nor Wife wanted to keep the company if it were awarded to him or her. The trial judge could reasonably conclude that if the company were awarded to one spouse for the PNA appraised amount, that spouse would sell it and receive at most 58% of the appraised amount, whereas the other spouse would receive the entire appraised amount in other property or in a promissory note secured by the community property awarded to the party receiving the the company. The trial judge could conclude that such a result would not be consistent with the PNA to divide the community equally nor would it result in a just and right division of the community estate as required by the Texas Family Code.
The Court of Appeals affirmed the trial judge’s rulings, and ordered that Husband recover his costs of appeal from Wife.
Case Reference:
In the Matter of the Marriage of AWE and DMFN, No.05-19-01303-CV (Tex.App.-Dallas March 4, 2021)
*Any article or blog post is for educational and informational purposes only and is not a substitute for the advice of a licensed Rivers McNamara attorney.