How business appraisers can do ‘the impossible’ in divorce

BVWireIssue #82-2
July 15, 2009

During these turbulent economic times, business appraisers and forensic accountants are “asked to do the impossible,” according to Karen Kaseno, principal of The Kaseno CPA Firm in San Diego, who spoke at the recent 2009 NACVA/IBA Consultants’ Conference in Boston. “We’re asked to put a value on a business in today’s world—and that’s tough.” A historically profitable business could be suffering unprecedented losses, she said. In divorce cases, in particular, appraisers and accountants often have to evaluate the marital business with incomplete records, an uncooperative owner, an anxious non-owner, and limited funds. BV professional standards make it difficult to do the “cheap” valuation that many family law practitioners want, Kaseno said, but the recession has made it difficult to perform the necessary work and get paid. What’s a competent, conscientious BV appraiser to do?

In cases when the parties are truly in a settlement mode, consider a calculation engagement, permitted under the AICPA’s SSVS-1, just to get an approximate value for the marital business. “We will do a calculated value report for settlement purposes only,” Kaseno emphasized. In addition, the parties and their attorneys are required to agree in advance on which valuation methods will be used, also permitted by SSVS-1. “We put this in the engagement letter. If it goes to trial, we will upgrade it [to a full-blown valuation report].” Kaseno’s firm will also get paid up front, before taking on any engagement.

Check around in your area for what your professional colleagues are doing, she advised. “Make sure you are comfortable with what you do.” Has she lost business because she won’t perform a calculated value for trial? “Yes.” Do attorneys understand the policy? “No. They may not know [BV professional] standards well enough to understand them,” she added. “It’s been the subject of a lot of conversations,” she said, and business appraisers can go a long way toward educating attorneys and their clients. They can discuss the limits and allowances of the standards as well as the advantages/disadvantages of various valuation approaches.

What happens when divorce assets continue to depreciate all the way up to trial? Many court jurisdictions fix the valuation date for appraising marital assets as of the filing of divorce proceedings. But what if a trial date is six months or even a year away, and the business value keeps declining during this economic downturn? The effect of subsequent economic events on appraising marital businesses will be a keynote topic at the BVR/NACVA/ASA 2nd Annual Summit on Business Valuation in Divorce. Conference co-chairs Jay Fishman, Bill Morrison, Sharyn Maggio will join a pre-eminent panel of top BV experts, judges, and lawyers to present the best standards of BV practice in Chicago Sept. 24-25 in "Projections, Post-Judgment Events, and the post-Bernie Madoff World."  To view the preliminary agenda, click here.

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