As outlined in a recent webinar and in our CFL™ course, you can value businesses and real estate using different methods. The Maryland appeals court case of Persaud v. Goad shows how viewpoints and valuations may vary for these assets.
Circuit Court Proceedings
Sondra Goad and Robert Persaud met in 1998 while they worked for Southwest Airlines and married 11 years later.
While he worked as a pilot, Robert managed a real estate venture, Mount Vernon Properties, LLC (MVP). In 2009, he acquired The Belvedere, a condominium complex in Baltimore City, through creating three limited liability companies (LLCs). The building included three residential units, a parking lot, and three food service businesses: a bar and restaurant, a night club, and a catering company.
Both spouses contributed labor and money to the Belvedere. Robert withdrew or borrowed large sums from MVP to cover closing costs and get working capital. Sondra retired and managed sales for the catering business. She borrowed against her retirement savings to contribute to the business and later sold her retirement assets.
After their separation in 2014, Mr. Persaud continued to work in the businesses, but the couple’s disagreements became more frequent and serious. By the fall of 2015, Sondra assumed nearly exclusive management control.
In February 2016, Robert sought an absolute divorce on the ground of a one-year separation. He asked the court to determine the value of all marital property and to grant him a monetary award. Sondra counterclaimed and sought similar relief.
According to appraisal reports, the historic Belvedere was once a luxury hotel. The couple presented a difference of nearly $5 million in their valuations of the catering business and its space.
Their proposals for the monetary award mostly depended on the value of Sondra’s holdings. Robert requested $2,672,000, premised on the court’s acceptance of his experts’ valuations. He also asked the court to order an equal division of his retirement assets. Ms. Goad proposed awards of either $134,027 or $704,121, based on the court’s acceptance of some or all of her valuations.
The court granted an absolute divorce and ultimately awarded Robert $763,150, to be paid in monthly installments of $10,000. He appealed, challenging, among other issues, the valuations, the award amount, and the payment method.
Court of Special Appeals of Maryland Verdict
The appeals court rejected Robert’s contentions that the circuit court committed a reversible error or abused its discretion when it determined the monetary award. It also denied his requests regarding his retirement assets and Sondra’s real estate holdings and the award payment method.
As for the valuations, the circuit court contended that both Truffles, LLC (holder of the catering business and related condos) and Truffles at the Belvedere (the business entity, aka TATB), had no value.
The two condo units Truffles, LLC owned weren’t used at the time of trial, and according to Robert’s expert, the valuation was based on their condition, condo fees, and the real estate taxes owed. Both parties’ experts agreed that the yearly expenses for them averaged nearly $100,000 and resulted in a loss. As for TATB, Robert argued that the court should have followed his expert’s testimony that it was worth about $1.2 million. Each expert arrived at different valuations and clashed on accounting systems (end-of-year cash versus accrual basis). The court settled on a value of $0.
In its ruling, the appellate court cited prior cases. “Maryland courts recognize that ‘[v]alution is not an exact science.” It also noted that “Nevertheless, the trial judge need not accept the testimony of any expert…Even though another fact-finder might have reached a different conclusion, the trial court was not clearly erroneous when it rejected” Robert’s expert’s testimony over the value of TATB.
Learn about the nuances of valuation so you can serve your family law clients better in our CFL™ course. Passing the course doesn’t just add to your credentials. An enhanced skill-set lets you tackle more complex cases and distinguish your practice from your competitors. And, remember to attend our next free and informative webinar – coming soon on June 25th!