In last week’s BVWire, we covered a divorce case in which the husband’s valuation expert used the multiattribute utility model (MUM) framework for separating personal and enterprise goodwill. The case occurred in a state (Illinois) where personal goodwill is not a marital asset, so it needs to be extracted. Interestingly, the expert used a “simplified version” of MUM and prevailed over the wife’s expert, who came up with a lower value using the “with-and-without method.”
The traditional MUM (which the courts have long accepted) uses an elaborate systematic method with such detail that it may open up the expert to aggressive attack on its many elements. For example, a 1-to-5 scoring scale is often used to weight each attribute of goodwill. Opposing counsel could ask: “Why did you choose a ‘3’ and not a ‘4’?” This full-blown method may be perceived as an “illusion of precision” that may trigger tough cross-examination. Instead, the MUM framework can be used in a more simplified way. In the recent case, the expert did not use a scoring scale but instead used a simple binary scoring method. For each attribute, he indicated whether it either existed or did not exist. A one-or-zero or a plus-or-minus indicator can be used for this.
Learn more: An article on the simplified MUM was published in the February 2016 issue of Business Valuation Update. It was written by Thomas Gillmore, a valuation expert and forensic accountant in Florida, who first brought this streamlined version to our attention. The article gives some background on the relevant legal landscape in Florida and describes his version of MUM based on an actual engagement. BVR has made Gillmore’s article available as a free download.
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