Attorneys and their cash-strapped family law clients frequently ask business appraisers to perform preliminary valuations “just for settlement purposes.” These requests often catch your expert between a rock (limited client funds for valuing a smaller business) and a hard place (limited evidentiary weight accorded to a preliminary calculation of value). The recent Hagar case shows courts are more than willing to reject calculations of value because they lack sufficient professional judgment and financial review.
A new decision confirms this seeming double standard in divorce engagements. On their own, the parties agreed to split the value of the marital business, which they said was worth $60,000. The trial court adopted their agreement in its orders on divorce. Then, four months later, the wife returns to court—this time with an attorney and an appraiser, who says the business was worth $172,000 according to his “preliminary” valuation. The appraiser also admitted that he lacked the documentation with which he would typically perform a complete business valuation—such as aged accounts, payroll taxes, etc. Accordingly, the trial court refused to reconsider its prior orders, and on review, the appellate court confirmed. The preliminary valuation by the wife’s appraiser came with the specific caveat that it was incomplete, and because the parties could not establish a clear, alternative value for the business, the trial court did not err in adopting the parties’ original value and rejecting the wife’s request for reconsideration. Read the complete digest of In re Marriage of Cantarella, 2010 WL 86284 (Cal. App.)(Jan. 11, 2011) in the next (March 2011) Business Valuation Update; the court’s decision will be posted soon at BVLaw. In re Marriage of Hagar is available free from BVLaw News here.