Calculation engagement value holds up in Alabama divorce litigation

BVWireIssue #192-1
September 12, 2018

marital dissolution/divorce
expert testimony, calculation of value, limited liability company, rule 702, SSVS-1, reliability, valuation report, engagement letter, capitalization of excess earnings method, expert qualifications

Many valuators are adamantly opposed to doing calculation engagements, as we recently reported. Among other concerns, they fear that nonvaluators, including judges, may not recognize the critical differences between a valuation engagement and a calculation. The critics argue that a valuation engagement, if done right, adheres to standards of independence and reliability. In contrast, a calculation engagement is not only easier to do, it is more profitable. But a recent Alabama divorce case shows that judges may well be attuned to the differences between the two types of valuation and that a calculation engagement can provide meaningful guidance to the court under the right circumstances.

The parties in this divorce proceeding contested the valuation of the husband’s dental lab. The husband served as his own valuation expert. The wife retained a CPA who was a certified valuation and financial forensics analyst. The expert worked pursuant to a calculation engagement. The husband and his counsel attacked the expert at various stages of the trial, arguing, among other things, that he had conducted the “wrong” type of valuation. He had submitted a valuation pursuant to the more lenient requirements of a calculation engagement as opposed to the more “thorough and accurate” valuation engagement. Counsel spent a great deal of time developing evidence as to the difference between the two types of valuation.

The attacks were unsuccessful. The trial court found the expert used “methods recognized and accepted by [the] accounting industry for accountants conducting ‘calculation engagements.’” Also, simply because a “more arduous or accurate method (valuation engagement) exists does not preclude the Court’s consideration of [the expert’s] findings.” The court pointed out that the husband did not present evidence that directly contradicted the expert’s findings for the relevant years. “And the Husband did not employ his own expert or pay the increased fee to [the expert] to conduct the more rigorous ‘valuation engagement.’” 

The appeals court affirmed. It said the trial court duly had noted that the expert’s value determination conformed to a calculation engagement rather than a valuation engagement. This factor went to the weight of the testimony but did not disqualify the estimate from consideration by the trial court. The appeals court also found the SSVS approved of the capitalization-of-earnings method, which the expert had used. The husband left the trial court with no credible valuation evidence other than the calculated estimate by the wife’s expert, the reviewing court said.

A digest of Rohling v. Rohling, 2018 Ala. Civ. App. LEXIS 94 (June 1, 2018), as well as the court’s opinion, is available at BVLaw.

Extra: A recent webinar, Calculation Engagements: Risks, Rewards and New Guidance, was conducted by Jim Alerding (Alerding Consulting, LLC), one of the authors of the new guidance from the AICPA. To access a recording, click here.


Please let us know if you have any comments about this article or enhancements you would like to see.