Financial Expert Guide for Family Law Judges and Attorneys
John Tatlock, Kevin Yeanoplos, Ron Seigneur
Business Valuation Resources, LLC
NEW National Edition Coming Soon
The Financial Expert Guide for every Legal and Valuation library!
Financial issues are often the cornerstone issue in dissolution of marriage cases. Contests over the division of marital assets and debts, the determination of whether individual assets are part of the marital estate or one spouse’s separate property, and disagreements over value and allocation frequently merge to become one of, if not the, primary areas of focus of protracted domestic relations litigation in dissolution cases. If a private, closely-held business is part of this property mix, spousal disputes frequently become even more charged and contentious, and the litigation spreads to embrace financial and valuation experts who are engaged to perform a host of financial services, ranging, in no particular order, from the valuation of assets, particularly privately-held companies, asset tracing to assist the court in classifying the asset, or the residual component of an asset, as either marital or separate property, and, where suspicions are highest, engaging in the financial forensics necessary to identify and locate concealed or mis-valued assets.
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TABLE OF CONTENTS PREVIEW
DISCLAIMER
ABOUT THE AUTHORS
FOREWORD
DEDICATIONS
ACKNOWLEDGMENTS
INTRODUCTION
CHAPTER 1: ATTORNEY/EXPERT COOPERATION IN PREPARING
THE VALUATION REPORT
Defining the Scope of Engagement
Nature of the Expert Engagement
Defining the Expert’s Role
Expert Roles in Mediation and Settlement
Rules Governing Expert Selection
Masters (C.R.C.P. 53)
Consulting Experts
Disclosed Experts
Terms and Timing of the Engagement
Confidentiality
Planning and Timing of the Expert’s Role
Expert Deadlines
Counsel-Expert Coordination and Cooperation
Rules of Engagement for Counsel with Expert
Rules of Engagement for Expert with Counsel
Calendars and Deadlines
Communication and Coordination
Budgeting the Expert Engagement
Preparing and Delivering the Expert Opinions
Draft Expert Opinions and Communications with Counsel
Disclosing the Expert Opinion
Disclosures for the Not-Specially-Retained Expert
“Considered” Versus “Relied Upon”
Preparing the Report
Deposing Opposing Experts
Defending Your Expert
Professional Standards for Financial Experts
Addendum 1: Sample Index for Information, Data, and Documents Counsel Provides to Expert
Addendum 2: Sample Index for Expert Requests to Counsel for Information, Data, and Documents
Addendum 3: Sample Document Request List
Addendum 4: Sample Business Valuation Questionnaire
CHAPTER 2: THE LEGAL FOUNDATIONS FOR BUSINESS VALUATIONS IN DOMESTIC RELATIONS CASES
Introduction
Property as Defined in the Uniform Dissolution of Marriage Act
Goodwill as a Marital Asset
Business Goodwill as Marital Property
Measuring Goodwill
Consolidating and Clarifying the Valuation of Goodwill
Expanding the Application of Goodwill: Corporations, Partnerships, and Limited Liability Companies, Sole Proprietorships, and Other Business Entities
Premiums and Discounts
Preliminary Comments
Exemplary Case Law
Personal and Enterprise Goodwill
Specific Valuation Approaches and Techniques
Addendum 1: Enterprise v. Personal Goodwill, Rinder/Seigneur
CHAPTER 3: CONSTRUCTING THE VALUATION REPORT: STANDARDS OF VALUE AND PREMISE OF VALUE
Premise of Value
Standard of Value
Definition of “Fair Market Value”
Definition of “Fair Value”
Definition of “Investment Value”
CHAPTER 4: CONSTRUCTING THE VALUATION OPINION: REASONABLE COMPENSATION
Tax Court “Reasonable Compensation” GuidanceThe “Independent Investor” Standard for Reasonable Compensation
The “Commonsense View” of Reasonable Compensation
Employee Replacements and Substitutability as Reasonable Compensation Criteria
“Reasonable Compensation” and Professional Services Business: Specific Challenges
The Pediatric Associates Case
Determining Reasonable Owner-Employee Compensation
CHAPTER 5: CONSTRUCTING THE VALUATION OPINION: APPROACHES, METHODS, AND APPLICATIONS
The Three Approaches and Underlying Methods of Valuing a Closely Held Business
Asset and/or Cost Approach and Underlying Methods
Income Approach and Underlying Methods
Cost of Capital (Discount and Capitalization Rates)
Excess Earnings Method
The Importance of Financial and Non-Financial Analysis
Normalizing Adjustments
Market Approach and Underlying Methods
Selecting the Appropriate Approach/Method
CHAPTER 6: FINANCIAL FORENSICS AND THE SEARCH FOR HIDDEN OR MISVALUED ASSETS
Introduction
Common “Hidden” Assets
Uncommon “Hidden” Assets
Purposes of a Forensic Analysis
Steps in a Forensic Analysis
Client Roles in a Forensic Analysis
CHAPTER 7: CRITIQUING A BUSINESS APPRAISAL REPORT
Valuation Expert Review of the Appraisal Report
Calculation of Value
Conclusion of Value
Attorney Review of an Appraisal Report
The Fundamentals
The Architecture of the Report
Nature of the Valuation Engagement
Standard of Value
Premise of Value
Valuation Approaches
Valuation Methodologies
A Customized Analysis of Valuation Reports
Avoid “The Circle of Death”
Pay Close Attention to an Expert’s Normalizing Adjustments
Concentrate on the Expert’s Justifications for Approaches and Methods
Understand That Mathematical Assumptions Can Have a Material Impact
Be Aware That Tax Factors Affect a Company’s Income Stream
Check for Expert Blunders
Consider the Judge
Addendum 1: Checklist for Reviewing a Valuation Report in Family Law Cases
Addendum 2: Opinion of Value vs. Calculation of Value
CHAPTER 8: FINANCIAL EXPERT ENGAGEMENT CONSIDERATIONS IN FAMILY LAW MATTERS
Addendum 1: Example Agreement for Services Contract—Conclusion of Value
Addendum 2: Example Agreement for Services Contract—Calculation of Value
Addendum 3: Example Request for Documentation
Addendum 4: Example Business Valuation Questionnaire
Addendum 5: Example Subsequent Events Clause—COVID-19
APPENDICES
APPENDIX 1: EXEMPLAR VALUATION REPORT—CONCLUSION OF VALUE
APPENDIX 2: EXEMPLAR VALUATION REPORT—CALCULATION OF VALUE
APPENDIX 3: READING FINANCIAL STATEMENTS IN DIVORCE
APPENDIX 4: IN RE MARRIAGE OF THORNHILL: EMERGING ISSUES IN STANDARD OF VALUE DETERMINATIONS FOR FAMILY LAW MATTERS
APPENDIX 5: WHAT IS THE COST OF CAPITAL?
APPENDIX 6: A ROADMAP FOR EXPERT WITNESS DIRECT EXAMINATION
APPENDIX 7: INTERNATIONAL GLOSSARY OF ‘BUSINESS VALUATION TERMS’
APPENDIX 8: BIBLIOGRAPHY
INDEX