Valuation in a Divorce
By Dave Yoon, CPA, ABV, CVA, Principal, Advisory Services
Often the largest asset for division in a divorce is an interest in a business. Therefore, it is critical to find a qualified valuation professional to determine the appropriate value of the company.
Aswath Damodaran, a renowned Professor of Finance at NYU, states in his book Damodaran on Valuation:
Knowing the value of an asset and what determines that value is a prerequisite for intelligent decision making.
In a family law setting, the counsel, the parties, or the Court rely on valuation professionals to determine the value of the business to assist the parties involved in making intelligent decisions and receiving a fair share of the property.
Professor Damodaran also states in the book:
Perceptions of value have to be backed up by reality, which implies that the price paid for any asset should reflect the cash flows that asset is expected to generate.
Valuation is complex and divorce cases are often adversarial, so it might not be easy to agree on a value. Valuation professionals, including those at Marcum, rely on the three generally accepted valuation methods to determine a business’s value. Valuation models may be quantitative but ultimately involve subjective judgments and assumptions concerning future cash flows and economic factors. Therefore, opposing valuation experts assessing the same business may issue conclusions that are far apart. While the attorney advocates for the client, the valuation professional, as the expert, must only advocate for their opinion. Under Federal Rule of Evidence 702, the expert is there to assist and educate the counsel, the parties, or the Court by providing an analysis based on observable data and facts.
Another important aspect of valuation in a family law setting is the standard of value. States develop their own statutory and case law. The valuation professional needs to know the standard of value set by the jurisdiction. Is it investment value? Fair value? Fair market value? Too often, we come across valuation reports issued by experts that deviate from the standard of value appropriate for the jurisdiction. Valuation professionals should be familiar with the legal principles applicable in the state of the divorce proceeding.
Here at Marcum, we have highly qualified valuation professionals across the country that will assist the counsel, the parties, or the Court in determining the appropriate value of the business for property division.