Compensation for Transfer of Business to One Partner – part IV | Beit Din Eretz Hemda - Gazit | Beit Midrash

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Case: The plaintiff (=pl) and the defendant (=def) opened a center that provides therapy for children. According to their agreement, def, who has a similar center elsewhere, was responsible for the finances and infrastructure. Pl was to serve as a therapist, be in charge of day-to-day operations, interact with parents and workers, and plan events. The business and grounds’ rental were in def’s name. Pl and def were supposed to get small salaries and then split profits equally after reaching "the point of balance." After three years, acrimony brought them to separate, and beit din oversaw the transfer of the business to pl, with compensation due to def. [Last time, we saw different approaches of the dayanim as to the nature of the partnership. Now we will see how to valuate the center.]

Ruling: An expert hired by beit din decided to employ a system of appraisal that uses years of revenue to predict future revenue and value, and the sides agreed to it. He arrived at the value of 288,000 NIS. Subsequently, the sides questioned the number’s relevance, as follows. Def demands to factor the 165,000 NIS worth of property he claims to have left with the center. Pl argues that she did not get the center’s full value because she had to start many elements of the business from the beginning (e.g., computer program, phone number). She also demands to subtract from the value the expense of moving, as the lease cannot be renewed.

Regarding def’s claim of property, the expert confirmed that the system includes the property that is needed to make the business profitable. According to dayan 1, it indeed is true that pl did not receive all of the value of the business, and the calculation should be lowered to 270,000 NIS. The need to move should not be considered, for the following reason. It was discussed that the owner of the center would have the opportunity to develop a new, large area. While development is costly, there are indications that the opportunity is well worth it. While there was not a claim that this value should be added to the center’s value, it is reason to not reduce the value due to cost of moving. [Analysis of the claim that pl was underpaid and that this greatly inflated the value is beyond our scope, but makes the following necessary.] One of the ways to decide on the partner who is to receive the business is to give it to the one who is willing to pay more. Clearly, the sides subjectively saw the center as worthwhile to pay for significantly. Therefore, according to one dayan 1, we should not reduce the value further, and def should receive 270,000/2 = 135,000 NIS.

According to the majority of dayanim, the 288,000 NIS should not be reduced, and based on their view of a partial partnership, to not include property, def must be compensated for giving it up. Def claimed the property was worth 165,000 NIS, whereas pl says it is worth 35,000 NIS. Def did not ask for an appraiser and did not document the value of the property. Based on compromise, beit din will estimate the property value, which is def’s, as 55,000 NIS out of the 288,000 NIS; the remaining 233,000 NIS is jointly owned. Therefore, def deserves 55,000 + 233,000/2 = 171,500 NIS.