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The parties to a divorce action, or a proposed action, generally know that marital assets somehow will need to be split equitably. Marital assets generally include what has been acquired during the marriage, or the growth of such assets during the marriage. Their attorney will need to explain what the terms "marital estate" and "equitably" mean under state law.
If one of these asset is either:
An interest in a private, closely-held business; or Options on a private, closely-held business; or An interest in a professional practice [e.g. legal, medical, business consulting, etc.] Fractional and/or limited interests in real property
then both parties to the action need a Business Valuation expert on his or her side because the law requires that all relevant facts be sufficiently disclosed and considered. Occasionally, both parties engage a single business valuation expert.
The Business Valuation expert will value those assets in a manner consistent with the law. Generally, the appropriate standard of value prescribed by state law is Fair Market Value; some state courts, however, have put their own spin on what constitutes fair market value, and again it is the attorney's role to explain the relevant decisions, this time to both the client and the appraiser. It is important to understand that BV for marital dissolution is highly state law specific: the law is indeed different in NY, NJ, CT and any other state ! Some states allow the appointment of "neutral" appraisers by the Court; some will not, but will sanction an appraiser being jointly-retained by both parties.
With the receipt of a strong, highly logical and defensible, in fact iron-clad valuation report, the attorney will then be able to negotiate the strongest possible resolution for his/her client. This is true whether the client is the husband or the wife, is or is not the owner, or the manager of the closely-held business or professional practice involved. It is also a good idea for the Business appraiser to make recommendations on how continuity of the business may be preserved while resolving both parties' claims.
In most professional practice valuation work for divorce purposes, the business appraiser needs to deal with the issue of "double dipping" based on how state case law covers that issue. Generally, the value of a professional practice is highly dependent on the contribution of its professional[s] and is more dependent on the goodwill of the professional[s] than, say, a small manufacturing or distribution business is dependent on its "key person." The goodwill associated with the professional is generally not considered part of the marital estate and awarding part of it to the other spouse would amount to counting it twice. Practice goodwill, on the hand, is. Facts and circumstances are the basis for determining the goodwill of both the professional and his/her practice. State law is very different from state to state on this issue, and, of course, it pays to know.
J.L. Pierson & Co. LLC welcomes your inquiries on marital dissolution related valuations. Click hereto read an article written by J.L. in 1998 on the subject of private/public stock options in the context of divorce. Click here to read the outline of a presentation by J.L. to the Family Law Section of the Connecticut Bar Association in New Haven, CT on March 9, 1999 entitled The Valuation of Professional Practices For Divorce Purposes.
Click here for an article in VALUE ADDED on Divorce and Valuation Terms.
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