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June 2017 | Issue 86 Background Constellis Group,  Inc. is a private security firm.  In December 2013, the Company formed an Employee Stock Ownership Plan (“ESOP”), which purchased 100% of Constellis’s voting stock.  Wilmington Trust NA was named Trustee of the ESOP.  Less than a year after the ESOP was created, the ESOP sold all […] More...


March 2017 | Issue 85 Introduction Richard and Steven Parker are brothers who ran a flower business in Scotch Plains, New Jersey.  Richard is the President of Parker Interior Plantscapes (“PIP”), which installs and services plants and flowers in commercial settings.  Steven is the President of Parker Wholesale Florists (“PWF”), which is a garden center.  […] More...

Dell Appraisal Spawns a Multitude of Valuation Approaches

February 2017 | Issue 84 Introduction A Delaware Chancery appraisal case involving computer company Dell Inc. gave rise to a multitude of valuation measurements.  It is instructive to see how the court sorted through them in coming up with its final appraisal conclusion.  The case is In re Appraisal of Dell Inc., 2016 Del. Ch. LEXIS […] More...

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Value Can’t Go Below Zero in Virginia Divorce Case

July 2013 | Issue 68


The marital assets of Rohit and Ilaben Patel included Mr. Patel’s interests in four limited liability companies.  Each of these companies was operating or developing a motel in Alabama, Virginia, Maryland or Louisiana.  Both parties to the litigation agreed that each of these entities had a negative value, owing to the fact that each had liabilities that exceeded the value of its assets.  The Circuit Court of Henrico County Virginia found, however, that for purposes of assigning value to Mr. Patel’s interests in these investments for equitable distribution purposes, each entity should be treated as having a value of zero rather than a negative value.  This, of course, increases the overall value of the marital estate.  Ms. Patel had been awarded 40% of the marital estate.


Mr. Patel appealed this decision to the Court of Appeals of Virginia (Rohit Patel v. Ilaben Patel, Record No. 0875-12-2, April 9, 2013).

The circuit court had held that an offset for the total value of a marital estate based on the negative value of one asset is not recognized in Virginia law governing the equitable distribution of marital property.  The appeals court expanded on the rationale of the circuit court’s holding by pointing out that the property at issue includes several companies that own or operate hotels.  Companies that are young or expanding “often need to incur… debt… in order to generate a profit or expand operations.”  The appeals court went on to say that “simply because a company’s debts exceed its assets at a given point in time does not mean that the company has a negative value.  Nor does it mean that the company is incapable of generating profits or that the company does not have a positive cash flow capable of paying off any debt.  Instead, it merely shows that at the time of valuation the company has more debt than assets.”

The Personal Liability Argument

Mr. Patel pointed out that he was personally liable for the debt of these companies, and that if they go out of business, he will be liable for the excess of the debts over the assets. Therefore, the excess should count as marital debt.

The appeals court disagreed, pointing out that there was no indication that any of these companies were insolvent or on a path towards bankruptcy at that time.  Thus, the court said “the fact that the husband may ultimately be personally liable on the debts at some point in the future is not properly part of the present valuation calculus, as there was no indication that the husband was actually or likely liable for the debts at the time of the evidentiary hearing.”

The Decision

The court of appeals affirmed the judgment of the circuit court.

IRS Circular 230 disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding any penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction(s) or tax-related matter(s) addressed herein.