Cavallo is an unpublished Virginia Court of Appeals opinion issued February 25, 2014, involving the interpretation of a premarital agreement in the context of equitable distribution.[1]

            The premarital agreement provided wife one-half the net appreciation in husbands pre-marital separate businesses at the time of divorce. Wife’s evidence consisted of an expert witness who read asset values of current business financial statements into the record.  Wife’s lawyer never asked the expert about the net worth of the businesses.  The trial court’s monetary award to wife based exclusively on asset totals was properly reversed on appeal.

            It is fairly well-known that the net value of (or equity in) a business is not the same as its fair market value; instead, it is assets minus liabilities.  For example, a business that could be sold for a million dollars might have a net worth of zero if the owner had to take out a million dollar loan to acquire it.  Wife’s grossly deficient evidence of change in net worth was only one of her problems.

            Wife’s second major problem was her failure to offer evidence that the pre-marital agreement entitled her to utilize a particular business valuation method. (The court of appeals points out that there are three regularly accepted formulas for business valuation; income capitalization, the market-based approach and the asset-based model.)  Wife never invoked any of these formulas.  Thus, she failed to meet her burden concerning both elements that she was responsible for proving.

            Finally the appeals court said that attorney fees awarded to wife needed to be recalculated.  Since wife did not establish her right to any appreciation in husbands separate business property, she could not claim attorney fees under the pre-marital agreement.  Wife was entitled to some attorney fees, but it was impossible to tell what exactly the fee award in her favor was for.  So that part of the case went back to the trial judge.

            It is interesting that even though wife had competent counsel, she would fail to complete either prerequisite to receiving a share of net appreciation of husband’s businesses.  Further, a competent judge’s equitable distribution award was partially reversed.   This goes to show that even with good lawyers and judges, it’s hard to get everything right.

[1] Husband was represented the Bowen law firm, while wife received legal services from Lieblich and Grimes.  Both are well-respected firms.  The lower court judge was the Honorable Jan Brodie.