Case Summary: Marhoum V. Fekkak

BY LARRY M. PULLEN, CPA/ABV/CFF, CVA, ASA AND CONNOR BRENNAN

---

The following article was prepared by its authors. The opinions expressed in the article represent the authors’ and may not reflect the view and/or opinion of Vallit Advisors and its staff. Views/opinions are based on the specific facts and circumstances of each Matter.

---

Larry Pullen is a Director at Vallit Advisors, LLC. Larry has over 30 years of public accounting experience and has also gained valuable expertise in business valuation, forensic accounting, and litigation over the years. Prior to joining Vallit Advisors, he had over 16 years of experience with a regional CPA firm, where he was a leader in the Forensic and Valuation services practice. He also previously worked as an auditor for a regional public accounting firm. Larry has provided business valuations for both non-dispute and dispute purposes as well as consulting services related to commercial damages involving lost profits and lost value. He has experience in the tracing of marital assets for purposes of equitable distribution of mixed or transmuted property in domestic matters. He has also qualified as an expert witness in litigation cases involving economic damages, valuation and bankruptcy. Mr. Pullen can be reached at 443-482-9500 Ext. 122 or lpullen@vallitadvisors.com

Connor Brennan is an Analyst at Vallit Advisors, LLC and primarily focuses on providing dispute advisory, business valuation, and forensic accounting services for our clients. Connor recently graduated from Salisbury University with his bachelor’s degree in finance and a minor in accounting. Mr. Brennan can be reached at 443-699-6412 Ext 115 or cbrennan@vallitadvisors.com

---

IN MARHOUM V. FEKKAK (THE “APPEAL”), BEFORE THE COURT OF APPEALS OF VIRGINIA (THE “COURT”), THE HUSBAND APPEALED THE CIRCUIT COURT OF LOUDOUN COUNTY’S EQUITABLE DISTRIBUTION RULINGS ARISING FROM THE PARTIES’ DIVORCE. THE APPEAL CHALLENGED THE TRIAL COURT’S CLASSIFICATION, VALUATION, AND DISTRIBUTION OF THE HUSBAND’S CLOSELY HELD BUSINESS, BENEL SOLUTIONS LLC (THE “COMPANY”), AS WELL AS THE COURT’S PAYMENT SCHEDULE AND AWARD OF ATTORNEY’S FEES TO THE WIFE. THE HUSBAND ARGUED THAT THE TRIAL COURT MISAPPLIED VIRGINIA’S EQUITABLE DISTRIBUTION STATUTE, IMPROPERLY RELIED ON EXPERT VALUATION TESTIMONY, ERRONEOUSLY CLASSIFIED MOST OF THE BUSINESS AS MARITAL PROPERTY, AND ABUSED ITS DISCRETION BY IMPOSING AN ACCELERATED PAYMENT SCHEDULE AND AWARDING ALL ATTORNEY’S FEES AND COSTS TO THE WIFE. THE COURT REJECTED EACH ARGUMENT AND AFFIRMED THE TRIAL COURT’S RULINGS IN FULL, HOLDING THAT THE BUSINESS WAS PROPERLY VALUED AT $800,000, THAT ALL BUT $30,000 OF THE BUSINESS CONSTITUTED MARITAL PROPERTY DUE TO MARITAL CONTRIBUTIONS AND EFFORTS, THAT THE PAYMENT SCHEDULE WAS SUPPORTED BY THE RECORD, AND THAT THE AWARD OF ATTORNEY’S FEES AND COSTS WAS WITHIN THE TRIAL COURT’S DISCRETION.

---

Introduction

In the Appeal, the main issues were:

1. Whether the trial court erred in valuing the Company at $800,000.
2. Whether the trial court properly classified the Company as predominantly marital property, with only $30,000 treated as the husband’s separate interest.
3. Whether legally sufficient evidence supported the trial court’s findings that (a) the increase in the value of the Company during the marriage was attributable to marital contributions and efforts, and (b) the wife was entitled to a monetary award based on that increase in value.
4. Whether the trial court abused its discretion by imposing an accelerated payment schedule and awarding the wife all of her attorney’s fees and costs.

The subject of this appeal is the Company, a closely held business co-founded by the husband prior to the parties’ marriage. During the marriage, the husband became the sole owner after purchasing his business partner’s interest using marital funds. The Company experienced financial distress during the marriage, and both parties contributed marital assets and efforts to sustain and rehabilitate the business. The wife presented evidence that marital savings were used to fund business-related litigation, that the husband relied on the Company as a pass-through entity for personal expenses, and that she contributed both financially and through non-monetary efforts to the Company’s recovery and growth. These contributions included supporting employee morale, assisting with business-related communications and events, and managing household responsibilities to facilitate the husband’s operation of the business.

When questioned regarding the Company’s finances, the husband asserted that he received limited personal compensation and maintained that his economic benefit from the Company was modest. However, the wife presented evidence that the husband treated the Company as a pass-through entity, using Company funds to pay personal expenses and failing to fully disclose financial accounts. The wife further alleged that the husband obscured the true extent of his financial benefit from the Company by commingling personal and business finances and by characterizing certain withdrawals in a manner that played down his access to and control over Company funds.

Although the parties had earlier disputes concerning the Company, the evidence showed that the material increase in the Company’s value was attributable to marital contributions, which became apparent only after the husband acquired full ownership of the business. The trial court found that marital funds and the parties’ combined efforts were necessary to stabilize and rehabilitate the Company following internal litigation and financial distress, and that the wife could not have reasonably identified or quantified the extent of the marital contribution to the Company’s increased value until after those events occurred.

 

Primary Issues Addressed by the Court

The primary issues the Court addressed and how they resolved them are discussed below:

(i) Valuation of the Company

The husband challenged the trial court’s valuation of the Company at $800,000, arguing that the expert’s analysis relied on outdated information, improperly rounded values, and failed to account for certain liabilities. The Court held that the trial court permissibly relied on the valuation evidence presented, noting that the income approach was a recognized methodology, that the expert testified to a reasonable degree of professional certainty, and that the husband failed to present more current or contrary valuation evidence.

 

(ii) Classification of the Company as Marital Property

The husband argued that the trial court erred in classifying the majority of the Company as marital property, asserting that a substantial portion should have remained his separate property. The Court rejected this argument, holding that the evidence supported the finding that marital funds and marital efforts contributed to the Company’s increase in value during the marriage. The Court further concluded that any alleged misapplication of the commingling provisions of Virginia’s equitable distribution statute was harmless, as the increase in value was properly treated as marital under the statute’s burden-shifting framework.

 

(iii) Sufficiency of Evidence Supporting the Monetary Award

The husband contended that the evidence was insufficient to support the trial court’s monetary award derived from the Company’s increased value. The Court disagreed, finding that the record supported the trial court’s conclusions regarding the Company’s growth from the time of the partner buyout through trial, and that the husband failed to meet his burden to demonstrate that any portion of the increase in value was attributable solely to separate property or post-separation effort.

 

(iv) Payment Schedule and Award of Attorney’s Fees

The husband argued that the trial court abused its discretion by imposing an accelerated payment schedule and by awarding the wife all of her attorney’s fees and costs. The Court upheld both rulings, emphasizing the trial court’s credibility findings, evidence of the husband’s access to substantial assets, and his litigation conduct, including discovery failures and use of Company funds to pay personal legal expenses. The Court concluded that both the payment schedule and the fee award were within the trial court’s broad discretion.

 

Application of Issues in the Appeal to Valuation Analyses

In the context of a business valuation analysis, the valuation has the following qualities:

1. Its conclusion of value is expressed as either a single dollar amount or a range.
2. The valuation considers all relevant information as of the valuation date available to the valuator at the time of performance of the valuation.
3. The valuator conducts appropriate procedures to collect and analyze all information expected to be relevant to the valuation.
4. The valuation also considers all conceptual approaches deemed to be relevant by the valuator.

In this case, the valuation analysis centered on the Company’s intrinsic value and the extent to which the Company functioned as a pass-through entity for the husband’s personal benefit. Evidence demonstrated that the husband used Company funds to pay personal expenses and divorce-related legal fees and failed to fully disclose financial accounts. These facts were relevant to assessing both the reliability of the Company’s financial performance and the husband’s access to business assets when determining an appropriate monetary award.

The trial court relied on the income approach to valuation, which focuses on the Company’s earnings capacity rather than discrete asset values or outstanding debt. In doing so, the trial court credited expert testimony that normalized the Company’s financial results and accounted for the husband’s discretionary use of Company funds. The appellate court affirmed this approach, emphasizing that the income method was an accepted valuation methodology and that the husband failed to provide alternative or more current valuation evidence.

With respect to classification, the Court applied Virginia’s burden-shifting framework for increases in value of separate property. The evidence showed that marital funds were used to acquire the remaining ownership interest in the Company and to finance litigation critical to the Company’s survival, and that both parties contributed monetary and non-monetary efforts to rehabilitate the business. Once the wife demonstrated marital contributions as well as an increase in value, the burden shifted to the husband to establish that any portion of the increase in value was attributable solely to separate property or post-separation efforts. The husband failed to meet that burden.

Accordingly, the Court affirmed the trial court’s determination that all but $30,000 of the Company’s value constituted marital property and that the resulting monetary award appropriately reflected the Company’s increased value attributable to marital contributions. The Court further upheld the payment schedule and attorney’s fee award, finding that the husband’s access to business funds and lack of financial transparency were relevant considerations in evaluating his ability to pay.

 

Summary and Conclusion

The Court affirmed the trial court’s judgment in all respects. The Court upheld the trial court’s valuation of the Company at $800,000, its classification of all but $30,000 of the business as marital property, and the resulting monetary award to the wife. The Court found no abuse of discretion or misapplication of Virginia’s equitable distribution statute, concluding that the evidence supported the trial court’s findings regarding marital contributions, the increase in the Company’s value during the marriage, and the husband’s failure to meet his burden to establish any separate property component of that increase.

The Court also affirmed the trial court’s payment schedule and its award of attorney’s fees and costs to the wife, emphasizing the trial court’s credibility determinations, the husband’s access to substantial assets, and his lack of financial transparency. Accordingly, the husband was unsuccessful in overturning the trial court’s equitable distribution rulings, valuation findings, or fee award, and the judgment was affirmed in full.