Appeal from the Circuit Court of Cook County. Honorable Shelvin Hall, Judge Presiding.
Released for Publication July 21, 1997.
The Honorable Justice Zwick delivered the opinion of the court. Rakowski, J., and Leavitt, J., concur.
The opinion of the court was delivered by: Zwick
The Honorable Justice ZWICK delivered the opinion of the court:
On October 12, 1989, petitioner, Georgia Blackstone, filed this action for dissolution of her marriage to respondent, Ronald Blackstone. After trial, which commenced on January 28, 1992, the circuit court entered bifurcated interlocutory orders. The first order, entered on December 21, 1993, valued and divided the marital property. A second order, entered December 30, 1993, dissolved the marriage. Subsequently, on February 9, 1994, the trial court entered final judgment incorporating the earlier rulings. Respondent filed a post-trial motion which was denied July 15, 1994. He then filed timely notice of appeal.
On appeal, respondent argues the trial court abused its discretion in valuing and distributing the marital estate. Specifically, respondent argues (1) the trial court improperly valued three corporations owned by respondent as having a value to the marital estate of $300,000, when the only expert testimony at trial indicated that the corporations had a fair market value of $0 and (2) the overall division of marital debts was so disproportionate as to establish an abuse of the trial court's discretion.
The record establishes that the parties were married in Cincinnati, Ohio, on July 2, 1960. Respondent, in 1968, began working for R.R. Donnelly Co. in Chicago. In 1984, respondent started a printing business known as Atrium Graphics. Atrium Graphics was owned as a partnership between respondent and a man named Andrew Landum and was located in the State of Illinois Building. The parties' initial investment in Atrium Graphics was $105,000, $90,000 of which were proceeds from a Small Business Association loan.
In February, 1985, after discussions with petitioner, respondent voluntarily terminated his employment with R.R. Donnelly. He received a severance package which included payment of his full salary and benefits through the 1985 calendar year.
In March of 1985, respondent began preparation for the purchase of a Wendy's restaurant franchise. The training program required by the franchisor, Wendy's International, lasted approximately 14 weeks and required respondent to travel to Ohio. Respondent testified that he returned to Chicago on the weekends and spent his time then working with Landum at Atrium Graphics.
Subsequently, in 1985, respondent incorporated three corporations to operate the Wendy's franchise. RJB Properties, Inc., handled the daily operations of the restaurant. RGJ Management Company owned the land and the restaurant building which were located at 117th and Halsted Streets in Chicago. Two B's Enterprises, Inc., rented employees to RJB Properties so as to avoid the higher taxes imposed upon food service employees. Respondent testified that the couple's initial investment in the three corporations was "probably between $250,000 and 300,000."
In addition to owning and managing the Wendy's restaurant and Atrium Graphics printing shop, respondent began to make bids on institutional food services contracts through RJB. Respondent testified that, by 1991, RJB had submitted 75 to 100 bids for various institutional contracts, of which 7 or 8 had were accepted by institutions such as the Cook County Jail, the Cook County Sheriff's Office and the Chicago Public Schools. RJB also owned and serviced eight vending machines which dispensed food at CTA train stations.
Petitioner, at the time of trial, was earning in excess of $60,000 per year. In addition, over the course of the marriage, she had earned substantial retirement benefits. Respondent testified that he drew no salary from RJB in the first few years of its operation. In 1990, RJB paid him $24,000. The following year, 1991, respondent was paid $50,000.
Respondent's expert, accountant and attorney James Friel, prepared a report on the value of RJB. The report stated that whatever profits were being generated by the food service contracts were being overwhelmed by the restaurant's continuing and substantial operating losses. In fact, after reviewing the various corporate tax returns, Friel concluded that RJB had experienced, since its incorporation and through the year 1990, a retained earnings deficit of $475,000. Friel testified this meant the corporation would have to earn nearly half a million dollars just to pay off existing liens on its assets or, alternatively, to achieve a positive book value. He also compared a potential sale of RJB with records of recent fast-food restaurant sales. His comparison led him to believe that no buyer would ever be willing to purchase RJB in light of its operating history and its debt. He concluded that RJB's fair market value was therefore $0.
On cross-examination, Friel admitted RJB's gross sales were showing a rising trend, but noted that expenses were rising commensurately. He admitted he did not value RJB's food service contracts or other corporate assets individually, but had decided not to do so because their value did not matter in light of the substantial losses the Wendy's restaurant had incurred. He also stated he did not evaluate the food service contracts because they were not automatically renewable and were non-assignable. This meant they would not be of significant interest to a prospective purchaser of RJB.
Friel stated, also during cross-examination, that he had not performed any valuation on respondent's other companies, RGJ Management and Two B's Enterprises. He did not do so because respondent and respondent's attorney told him these companies had only minor value. They also told him that they were unwilling to pay him to perform a business appraisal on these companies.
Friel stated he did not focus on the fact that RJB had been paying down its debts as a factor in determining RJB's fair market value. He admitted that an "unusual" expense of $126,945 had been taken by the corporation in 1991 for "professional fees," but said it was not necessarily an improper charge in light of the company's significant gross sales which exceeded $4,000,000. Friel denied that the corporation had any good will.
Following testimony and during final argument, petitioner argued that respondent's shares in the three corporations were marital property and should be split 50/50. She offered no evidence of the dollar value of respondent's stock in the companies, but instead suggested that the court put her in charge of the daily operations of the various businesses.
In his argument, respondent admitted the three corporations were marital property, but characterized petitioner's suggestion she be put in charge of the operating the three corporations as "non-sensical." He instead submitted a proposed division of marital assets and debts in which he would be awarded all of the corporate shares of RJB, RGJ Management and Two B's, including their debt. He suggested that such a division was fair in light of the corporations' extensive liabilities and his sole involvement during the course of the marriage in running the businesses.
After concluding the proceedings, the trial court issued its ruling. The court determined that petitioner's annual salary was in excess of $60,000 and respondent's salary was $50,000. Neither party was awarded maintenance as the evidence indicated they were both self sufficient. The court concluded the three corporations owned by respondent were marital property and rejected petitioner's suggestion that she be put in charge of running them because she had no expertise or experience in doing so. The trial court also rejected the testimony of respondent's expert witness, James Friel. The court stated that it found both his testimony and his analysis of RJB's value to not be credible. The court found that Two B's Enterprises had no value, but it determined that RJB and RGB Management, the latter which owned the land and building on which the Wendy's restaurant was located, had a combined value of $300,000. Accordingly, the corporate assets and debts were awarded to respondent. Petitioner was awarded a corresponding offset of $150,000. The remaining marital assets were divided by the court in a "Marital Balance Sheet," which we will discuss later in this opinion.
Respondent first argues that there is insufficient evidence in the record to support the court's valuation of the three corporations. Section 503(d) of the Marriage and Dissolution Act (the Act) directs the trial court to divide marital property in "just proportions," after considering all relevant factors including the contribution made by each party to the acquisition of the marital property; the duration of the marriage; the parties' relevant economic circumstances; the age, health, occupation and needs of each party; and the parties' reasonable opportunity for future acquisition of assets and income. 750 ILCS 5/503(d) (West 1994).
In a dissolution proceeding, the burden of presenting the court with sufficient evidence to fairly evaluate and divide the marital property does not fall upon the petitioning spouse alone, but rather, is an obligation existing with both parties. See In re Marriage of Courtright, 155 Ill. App. 3d 55, 59, 507 N.E.2d 891, 107 Ill. Dec. 738 (1987); In re Marriage of Deem, 123 Ill. App. 3d 1019, 1023, 463 N.E.2d 1317, 79 Ill. Dec. 542 (1984). In this case, however, the record establishes that neither party met this burden, at least with respect to the valuation of the three corporations now in dispute.
Petitioner failed to offer any evidence of the value of the respondent's corporate shares, even though she readily recognized that these shares were one of the marital estate's most significant assets. Although respondent did offer evidence of the value of his closely held businesses in the form of expert testimony from James Friel, the trial court ultimately rejected both Friel's testimony and his analysis.
So long as the trial court's valuation of marital assets is within the range testified to by expert witnesses, it will not ordinarily be disturbed on appeal. In re Marriage of Olson, 223 Ill. App. 3d 636, 646, 585 N.E.2d 1082, 166 Ill. Dec. 60 (1992); In re Marriage of Brooks, 138 Ill. App. 3d 252, 486 N.E.2d 267, 93 Ill. Dec. 166 (1985). It follows that when the trial court renders a valuation that is outside the expert testimony presented at trial, we have the obligation of more carefully scrutinizing the trial court's determination. This is because evidence of both the marital and nonmarital assets of the parties must be shown on the record in order for a reviewing court to determine the propriety of the division of marital property. Deem, 123 Ill. App. 3d at 1023. After carefully scrutinizing the record to determine whether the trial court's valuation in this case can be supported by the evidence presented, we conclude that it can not.
The only credible evidence which might support a valuation of $300,000 was respondent's testimony that the couple had capitalized the corporations with between $250,000 and $300,000 when the corporations were formed in 1985. This was, however, more than six years before the trial. It is established that there is no particular relationship between the stated capital of a corporation at the time it is incorporated and the corporation's fair value after several years in operation. See In re Marriage of Weiss, 129 Ill. App. 3d 166, 173, 472 N.E.2d 128, 84 Ill. Dec. 378 (1984); In re Marriage of Olsher, 78 Ill. App. 3d 627, 636, 397 N.E.2d 488, 34 Ill. Dec. 32 (1979). Returning petitioner's share of the couples' initial investment to her six years later, as if nothing had happened in the ...