The husband owned a minority (25%) interest in an oil and gas holding company, which his expert valued using the build-up method and a discount rate derived from Ibbotson. During deposition, the wife’s attorney questioned the expert’s methodology, and asked who was a top authority in the field. When the expert cited Gary Trugman, the wife brought him in as rebuttal expert. At trial, Trugman testified that the proper method would have been to apply the Ibbotson-derived discount rate to net cash flow and not to “estimated actual dividends at the shareholder level.”
The result? Here’s what the Michigan Court of Appeals said: “Trugman is perhaps THE most qualified and respected business evaluator in that profession,” quoting from a divorce trial in which Gary Trugman appeared as a rebuttal expert. “Trugman literally wrote the book on business valuation.”
“Well, it’s better to be lucky than good,” Trugman told the BVWire™, with characteristic modesty, concerning his role in Lemmen v. Lemmen (Mich. App., Feb. 9. 2010).
May not be the final word. The trial court accepted Trugman’s testimony but also applied minority and marketability discounts, based on the same expert’s valuation of a co-owner’s 25% interest four years before the divorce. A single but strong dissent claimed the discounts contradicted equitable principles, given the company’s substantial liquid resources, and advocated adopting the statutory fair value standard in divorce, based on case law from other jurisdictions. The parties obviously have sufficient resources and a precedent-setting issue to appeal to the Michigan Supreme Court.