Lacoste v. Lacoste, 2016 Miss. App. LEXIS 460 (July 19, 2016)
Just because a business is small does not mean it’s easy to value, as a Mississippi divorce court recently found out.
The parties fought over the valuation of their most valuable asset, a fitness training company the husband had set up before the marriage. The company qualified as marital property because of the wife’s contribution to building the business. The husband was the company. Its main assets were the car he used to get to client sites and a few pieces of transportable equipment. Income fluctuated from year to year.
Although an accurate valuation was key to achieving an equitable distribution of property, the parties did not hire experts or even submit much financial information.
The trial court took it upon itself to perform the valuation based on the income approach. It acknowledged a proper valuation would require “a valuation expert to review the historic earnings, and after adjusting the income to reflect normalized earnings, multiply the normalized earnings by a capitalization factor.”
Instead of appointing an expert, the court valued the company on the basis of an income statement from a prior year. The court did not do a goodwill analysis.
The husband successfully appealed. The appeals court was mindful of the parties' failure to offer valuations, but it found too much was at stake to let stand the trial court’s value determination.
Read more about the appeals court's analysis here.