Valuing luck in a business caught up in divorce

BVWireIssue #198-4
March 27, 2019

marital dissolution/divorce
divorce valuation, marital dissolution, marital estate

In most states, the active appreciation of a premarital asset is includible in the marital estate while passive appreciation is not. Therefore, distinguishing between the two for a business interest can make an enormous difference in the outcome of the case. The arguments come down to a skill-versus-luck premise. The nonowner spouse will argue that the owner-spouse was the driving force behind the firm’s increase in value, while the other side will argue that external market forces are the cause. The analysis is very tricky because of jurisdictional differences and lack of empirical data. Also, there is very little professional or academic research on this topic, but it has been found that broader market forces often have a bigger impact on a company’s success than an executive’s actions.

A comprehensive overview of the process of performing an active/passive appreciation analysis plus an examination of jurisdictional issues will be offered at the National Divorce Conference in Las Vegas May 8-10. Bill Dameworth (Forensic Strategic Solutions) will conduct the session at the conference, which is presented by BVR and the American Academy of Matrimonial Lawyers (AAML). BVWire will be there—will you?

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