Prejudgment Interest Must Be Netted Against Interim Distributions When a Marital Business Is Awarded as of the Separation Date

Case: Ryan A. Johnston v. Tiffany G. Adkins f/k/a Tiffany G. Johnston; Tiffany G. Adkins f/k/a Tiffany G. Johnston v. Ryan A. Johnston

Court: Supreme Court of the State of Alaska (Memorandum Opinion and Judgment, Rule 214)

Date: October 8, 2025

Note on precedential status: This is a memorandum decision under Alaska Appellate Rule 214. It does not create binding precedent. It nonetheless offers practical guidance for similar disputes.

Introduction

This divorce appeal centers on how to equitably divide a jointly owned, closely held pediatric therapy business, Playful Learning Pediatric Therapy, LLC (PLPT), after separation. Following an eight-day trial, the superior court awarded the business to the wife (Adkins) retroactive to the separation date, adopted a hybrid of the parties’ competing valuation models, and ordered an unequal property division (approximately 53/47 in favor of the husband, Johnston) to account for the wife’s receipt of the principal income-generating asset. The court also awarded prejudgment interest on the husband’s share of the business from separation to trial and post-judgment interest on the equalization payments. Adkins later faced a substantial Blue Cross Blue Shield recoupment audit and moved to reopen the evidence, which the court denied in favor of finality.

On appeal, the Alaska Supreme Court affirmed virtually all aspects of the superior court’s decision—except one. It vacated the calculation of prejudgment interest because the trial court failed to account for the significant funds Johnston actually received between separation and trial. The decision clarifies that when a court awards a marital business to one spouse as of the separation date and compensates the other with prejudgment interest, the calculation must net out any interim salary, withdrawals, or distributions the receiving spouse already enjoyed during that period.

Summary of the Opinion

Goodwill characterization: Affirmed. The superior court did not clearly err in finding PLPT’s goodwill to be 40% personal (nonmarketable) and 60% enterprise (marketable), crediting the wife’s expert on this point.
Valuation date and award of business: Affirmed. Valuing the business as of the separation date and awarding it to Adkins as of that date was within the court’s discretion, particularly where the parties presented no later valuation and Adkins ran the business alone post-separation.
Overall property division (53/47): Affirmed. The unequal division was not clearly unjust, given the allocation of the income-generating asset and the findings on earning capacity and tax consequences.
Post-judgment interest on installment equalization: Affirmed. Interest properly compensates for the time value of money when equalization is paid over time.
Prejudgment interest on business share: Vacated and remanded. The trial court abused its discretion by calculating interest on the entire share without accounting for the $697,231 Johnston received in salary/withdrawals between separation and trial.
Motion to reopen evidence (BCBS audit recoupments): Denied and affirmed. The court did not abuse its discretion, emphasizing finality and the allocation of post-separation business risks to the spouse awarded the business as of separation.

Analysis

Precedents Cited and Their Role

Martin v. Martin, 52 P.3d 724 (Alaska 2002): Reiterates the three-step equitable division process—identify marital property, value it, and allocate equitably. Sets standards of review: clear error for valuation and abuse of discretion for allocation. The Court applied these frameworks throughout.
Beals v. Beals, 303 P.3d 453 (Alaska 2013); Fortson v. Fortson, 131 P.3d 451 (Alaska 2006); Schmitz v. Schmitz, 88 P.3d 1116 (Alaska 2004): Confirm de novo review for legal classification, clear error for valuation findings. Used to uphold the trial court’s adoption of one expert’s goodwill split over another’s.
Ogard v. Ogard, 808 P.2d 815 (Alaska 1991): Default valuation date is close to trial, but separation date can be appropriate in special situations with specific findings. The Court approved the separation-date valuation here, citing the evidence presented and post-separation operations.
Stevens v. Stevens, 265 P.3d 279 (Alaska 2011); Brotherton v. Brotherton, 941 P.2d 1241 (Alaska 1997): Endorse selecting a valuation date supported by the evidence, especially where no later valuations are provided. This was pivotal: neither party presented 2022 valuations.
Miles v. Miles, 816 P.2d 129 (Alaska 1991); Merrill v. Merrill, 368 P.2d 546 (Alaska 1962); McDougall v. Lumpkin, 11 P.3d 990 (Alaska 2000); Heustess v. Kelley-Heustess, 259 P.3d 462 (Alaska 2011): Establish the presumption favoring equal division, Merrill factor balancing, and deference to the trial court’s discretion when supported by findings.
McDaniel v. McDaniel, 829 P.2d 303 (Alaska 1992); Morris v. Morris, 724 P.2d 527 (Alaska 1986): Interest awards in divorces are discretionary but must comport with general judgment interest principles and not produce injustice. Morris provides factors for prejudgment interest, which informed the remand.
Brotherton v. State, Dep’t of Revenue (CSED), 201 P.3d 1206 (Alaska 2009); Cool Homes, Inc. v. Fairbanks N. Star Borough, 860 P.2d 1248 (Alaska 1993); Lundgren v. Gaudiane, 782 P.2d 285 (Alaska 1989): Interest compensates for lost use of money; it is compensatory, not punitive. Applied to uphold post-judgment interest on installment equalization.
Snider v. Snider, 357 P.3d 1180 (Alaska 2015): Sets factors for reopening evidence—importance, diligence, and prejudice. The Court affirmed denial to reopen given finality concerns and the separation-date allocation of risk.
Hensel v. State, 604 P.2d 222 (Alaska 1979); Josephine B. v. OCS, 174 P.3d 217 (Alaska 2007): Appellate deference to trial courts’ credibility determinations and choice between competing experts; crucial to the goodwill ruling.
AS 09.30.070(a): Statutory interest rate provision referenced to support post-judgment interest and, by analogy, the architecture of prejudgment interest awards.
Alaska R. App. P. 212(c)(3); Barnett v. Barnett, 238 P.3d 594 (Alaska 2010): New issues may not be raised for the first time in a reply brief. The Court used this to decline several of Johnston’s late-arising arguments.

Legal Reasoning

1) Goodwill: Personal vs. Enterprise

Both experts agreed PLPT had goodwill; they diverged on how much was tied to Adkins personally versus the enterprise. The trial court, after hearing eight days of testimony and weighing credibility, adopted the wife’s expert’s 60/40 split (enterprise/personal), finding she better understood the business’s operations and Adkins’s central role. Because goodwill apportionment is a fact question that often hinges on expert credibility, the Supreme Court deferred to the trial court’s supported findings.

2) Valuation Date and Award of PLPT as of Separation

Although valuation “as close as practicable to trial” is the general rule, Ogard permits a separation-date valuation in special circumstances with specific findings. Those circumstances existed here: the parties provided only 2020 valuations; Adkins solely ran PLPT after separation; and the court took steps to offset inequities resulting from a pretrial award (originally planned via a profit-sharing approach, later implemented via prejudgment interest). The Court emphasized that a party who seeks a different valuation date must present evidence supporting it; neither side did so here.

3) Overall Property Division (53/47)

While equal division is presumptively equitable, Merrill factors justify deviation. The trial court considered that Adkins received the principal income-producing asset (with accompanying tax consequences), that Johnston possessed financial skills and was not totally disabled from work, and that unequal division was warranted but not to the extent Johnston urged. The Supreme Court found no clear injustice.

4) Post-Judgment Interest on Installment Equalization

Because the court allowed Adkins to pay the $812,175 equalization over 10 quarterly payments, post-judgment interest compensates Johnston for the time value of money he would otherwise have had in hand. Interest serves compensation, not punishment; thus, attaching it to a court-approved payment schedule was within the court’s discretion.

5) Prejudgment Interest: Netting Interim Distributions Is Required

Here lies the core corrective. The trial court awarded prejudgment interest on Johnston’s entire $1,554,900 share from separation to trial to compensate for his delayed use of that money. But during that interval he actually received $697,231 in salary/withdrawals. Awarding prejudgment interest on sums already in his hands overstated the true “lost use.” The Supreme Court held that this was an abuse of discretion and remanded for recalculation to account for the interim funds he received.

In short: When a marital business is awarded to one spouse as of the separation date and the other spouse is compensated with prejudgment interest, the interest base must be adjusted for any partial payments or distributions the receiving spouse already enjoyed between separation and judgment.

6) Denial of Motion to Reopen Evidence (BCBS Recoupment)

Adkins sought to reopen to account for substantial BCBS recoupment letters, a portion of which related to pre-separation services. Applying Snider’s considerations, the Supreme Court affirmed the denial. The trial court implicitly recognized the evidence’s importance and Adkins’s diligence but emphasized finality and prejudice—the business was awarded as of separation, and reopening to capture later-emerging liabilities would risk endless recalibration. The spouse awarded a business as of separation also assumes its post-separation risks alongside its benefits.

Impact and Practical Implications

Prejudgment interest recalculation: This decision clarifies that courts must net out interim payments when computing prejudgment interest on a spouse’s share of a marital business awarded as of separation. Expect more granular, transaction-by-transaction interest analyses on remand and in future cases.
Separation-date awards are viable—if justified and evidenced: Where one spouse solely operates the business post-separation and no one supplies a contemporaneous trial-date valuation, separation-date valuation and award may be appropriate, with equitable offsets (e.g., prejudgment interest or tailored property splits).
Goodwill allocations remain fact-driven: Alaska trial courts retain wide latitude to credit one expert over another on personal versus enterprise goodwill, especially on credibility grounds.
Installment equalization will accrue interest: If equalization is paid over time, post-judgment interest at statutory rates will typically apply to ensure the payee is compensated for the delayed receipt.
Finality in domestic relations: Courts remain reluctant to reopen the evidentiary record after trial absent compelling reasons that overcome finality concerns and prejudice. Parties seeking reopening should be prepared to show importance, diligence, and minimal prejudice—and to explain why the original award date does not already assign the risk.
Issue preservation matters: Arguments raised for the first time in a reply brief are forfeited. Parties should present all key theories at trial and in opening appellate briefs.

Complex Concepts Simplified

Goodwill (Personal vs. Enterprise)

Personal (Professional) Goodwill: Intangible value tied to an individual’s reputation, skill, and relationships. Typically not marketable and generally not divisible as a separable marital asset because it does not transfer independently of the person.
Enterprise (Practice) Goodwill: Intangible value attributable to the business itself—brand, systems, workforce, location, contracts—marketable and typically included in fair market value.

Valuation Methods

Capitalization of Excess Earnings: Estimates goodwill by capitalizing the amount by which a business’s earnings exceed a reasonable return on its tangible assets.
Capitalization of Net Cash Flows: Values a business based on actual net cash flows, capitalized to reflect risk and growth assumptions.

Prejudgment vs. Post-Judgment Interest

Prejudgment Interest: Compensates for the loss of use of money between the date a party was equitably entitled to it (e.g., separation date for a business awarded as of that date) and entry of judgment. It must be equitable and should reflect amounts already received during that period.
Post-Judgment Interest: Compensates for the time value of money from judgment until payment. When equalization is payable over time, interest typically accrues at the statutory rate (AS 09.30.070).

Choosing a Valuation Date

Default: Near the time of trial for accuracy.
Exception: Separation date is permissible in special circumstances, such as when one spouse exclusively operates the business after separation and no updated valuations are presented.

Equalization Payments

When one spouse receives an indivisible asset (like a closely held business), courts often order cash equalization to balance the marital estate. If not paid in a lump sum, post-judgment interest generally compensates for delay.

Standards of Review

Legal questions: De novo review (no deference).
Factual findings (including valuation and goodwill allocation): Clear error (significant deference, especially with oral testimony and credibility determinations).
Allocation of the estate and interest awards: Abuse of discretion (reversed only if clearly unjust or inequitable).

Application to This Case: Key Numbers and Orders

Valuation: PLPT valued at $3,109,800 as of November 2020; Johnston’s marital half: $1,554,900.
Goodwill split: 40% personal (nonmarketable), 60% enterprise (marketable), based on the wife’s expert.
Equalization: Johnston to receive $812,175 through 10 quarterly payments over 2.5 years, with post-judgment interest at the statutory rate.
Prejudgment Interest: Initially set at $165,948 on the entire $1,554,900 share; vacated and remanded to net out the $697,231 in salary/withdrawals Johnston actually received between separation and trial.
BCBS Audit: Motion to reopen to add approximately $320,155 in pre-separation recoupments denied; finality and the separation-date award placed risks on Adkins.

Practice Pointers

Document interim payments: Keep a precise ledger of salaries, draws, and distributions to facilitate accurate prejudgment interest calculations.
Present current valuations: If you want a trial-date valuation, offer one. Absent evidence, courts may default to earlier dates supported by the record.
Address goodwill explicitly: Prepare to prove the proportion of enterprise vs. personal goodwill with operational evidence and expert analysis.
Anticipate interest: Expect post-judgment interest on installment equalization and, where appropriate, prejudgment interest on delayed shares—properly netted for interim receipts.
Think through risk allocation: If advocating for a separation-date award of a business, be prepared for the court to assign post-separation gains and risks (including later-discovered liabilities) to the awardee.
Preserve issues: Raise all theories in the trial court and in the opening appellate brief; new arguments in a reply brief are generally forfeited.

Conclusion

The Alaska Supreme Court’s memorandum decision in Johnston v. Adkins affirms the trial court’s broad discretion in the valuation and division of a marital business—upholding a separation-date award to the operating spouse, a fact-driven goodwill split, and a modestly unequal property division calibrated to earning capacity and tax impacts. It also underscores that post-judgment interest rightly accompanies installment equalization to compensate for delayed payment.

Most importantly, the Court clarifies an equitable guardrail for prejudgment interest: when a spouse receives interim distributions while awaiting division, a trial court must net those amounts out of the prejudgment interest calculation. Awarding prejudgment interest on funds the payee already possessed is an abuse of discretion. Finally, the decision reinforces the premium placed on finality in domestic cases; courts will be reluctant to reopen the record for late-breaking business developments where a separation-date award has sensibly allocated risks and rewards.

Though nonprecedential, this opinion offers practical guidance for Alaska practitioners managing divorces that involve closely held businesses: bring current valuations, track interim cash flows meticulously, brief interest issues with precision, and be prepared for separation-date awards to carry both benefits and burdens to final judgment.