Marital Dissolutions

The end of a marriage is an emotionally charged situation in which there is often wide disagreement between the parties regarding the valuation of a business or professional practice. ABA professionals are frequently retained by both parties or appointed by the court to deliver an independent opinion of value. Their neutral role has the potential to save money, time and emotional distress for all concerned. If, however, the valuation is to be contested in court, ABA professionals are also extensively trained, experienced expert witnesses.

There is substantial variation in the way the courts interpret which business assets constitute marital property subject to division and how they are valued. The following questions are answered differently from one court to another:

  • Is value to be determined by the value to the well-informed arm’s length buyer in the market (pure fair market value) or the value to the spouse who will retain the business or practice?
  • Are goodwill and other intangible assets marital property subject to valuation and division with the other assets owned by the couple? What portions are transferable and nontransferable?
  • If the business predates the marriage, does the value of the business at the time of the marriage remain the separate property of one spouse with the marital asset limited to the value change during the marriage?
  • To what extent should valuation discounts be applied to the business interest owned by the marital community?
  • To what extent, if any, should the family relationships of other shareholders to one of the spouses affect the value?
  • If the business has performed poorly since the separation, was it as a result of the distractions of the marital dissolution or have business conditions changed, and how does this affect the value?
  • What is the proper (required) date of the valuation? Is it the date of the separation, the filing, or the trial?

As you can see, divorce valuation creates a host of legal and valuation issues, which is why you need the services of leading experts like ABA members.

Such appraisals usually focus on two very complicated issues: the value of goodwill and valuation discounts. Goodwill is an invisible asset that usually does not appear on the financial statements. It consists of components such as the reputation of the business and its employees, its trade secrets, location, and many other factors. It may or may not, however, be a marital asset, and that is a legal determination.

In a similar vein, business interests of less than 50% often lack control over the course of a business, and there is virtually no market for them. As a result, the values of such interests are often reduced (discounted) to reflect these impairments. ABA professionals are industry leaders in the quantification and substantiation of these discounts, where legally applicable.

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