Financial Expert Guide for Family Law Judges and Attorneys, National Edition

April 2023 PDF, Softcover (413 pages)

John Tatlock, Kevin Yeanoplos, Ron Seigneur

Business Valuation Resources, LLC

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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  • Contains surveys and summaries of important appellate decisions that address many key valuation issues and legal principles, for parties, attorneys, and financial experts.
  • Provides the fundamental building blocks of the valuation analysis for a business, beginning with the discussion of the essential standards and premises of value that must apply in every valuation engagement, followed by the analysis of the business owners’ reasonable compensation and the specific recognized approaches and methods for conducting and reporting the results of a valuation analysis.
  • Includes a full-blown Conclusion of Value report in Appendix 1 that presents a comprehensive assessment of a privately held business in the context of its market and performance compared to similar businesses in its business or industry. 

TABLE OF CONTENTS


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
Terms and Timing of the Engagement
Counsel-Expert Coordination and Cooperation
Preparing and Delivering the Expert Opinions
Limiting or Precluding Valuation Expert Testimony: Daubert, 
Joiner, Kumho Tire, and State Case Law

 
CHAPTER 2: 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 3: CONSTRUCTING THE VALUATION OPINION: APPROACHES, METHODS, 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 Nonfinancial Analysis
Normalizing Adjustments
Market Approach and Underlying Methods
Selecting the Appropriate Approach/Method

 
CHAPTER 4: BUSINESS VALUATIONS AND PROFESSIONAL GOODWILL IN DOMESTIC RELATIONS CASES INTRODUCTION

Property as Defined Generally in the State Dissolution 
Statutes and Case Law
Goodwill as a Marital Asset
The Variety of State Approaches to Business and Professional Goodwill
Premiums and Discounts 
Other Valuation Issues

 
CHAPTER 5: CONSTRUCTING THE VALUATION OPINION:REASONABLE COMPENSATION

Tax Court ‘Reasonable Compensation‘ Guidance
The ‘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 6: FINANCIAL FORENSICS AND THE SEARCH FOR HIDDEN OR MISVALUED ASSETS

Introduction
Common ‘Hidden’ Assets
Uncommon ‘Hidden’ Assets
Purposes of Forensic Analysis
Steps in a Forensic Analysis
Client Roles in Forensic Analysis

 
CHAPTER 7: CRITIQUING A BUSINESS APPRAISAL REPORT

Valuation Expert Review of the Appraisal Report
Attorney Review of an Appraisal Report
The Fundamentals
The Architecture of the Report
A Customized Analysis of Valuation Reports

 
CHAPTER 8: FINANCIAL EXPERT ENGAGEMENT CONSIDERATIONS IN FAMILY LAW MATTERS 
 
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 

 
“The Financial Expert Guide for Family Law Judges and Attorneys is a must for attorneys of all experience levels. The authors provide a monumental amount of information in a concise package. From engaging a financial expert, to describing a wide scope of valuation principles, to providing case exemplars, to offering sample valuation reports, to making direct and cross-examination suggestions, and with references to abundant other resources, this treatise is more than just a primer for counsel. The Guide educates lawyers how to work with financial experts and handle complex valuation issues in divorce cases from A to Z. Highly recommended for any legal practitioner’s library as a go-to resource.”
 
Andrew Z. Soshnick
Partner
Fellow, American Academy of Matrimonial Lawyers
Fellow, International Academy of Family Lawyers
Family Law Certification Board-Certified Family Law Specialist in Indiana

“Experienced and new attorneys alike will enhance their abilities to work effectively with forensic accountants by adding this book to their arsenal of resources. The authors cleverly relay essential strategies with good humor and memorable illustrations, especially in Chapter 6 concerning hidden and misvalued assets. Explanations about modern financial realities, including the ability to hide cryptocurrency and to leverage technology, make this book especially valuable.” 

Amanda S. Trigg, Esq. 


“This book will surely help family law judges and attorneys to master divorce engagements involving business interests and professional practices! Tatlock, Seigneur, and Yeanoplos have condensed their vast expertise as divorce forensic experts into a deskbook that belongs on the shelf of every family lawyer. Business valuation and financial forensics can be bewildering topics for judges and lawyers who may not have accounting degrees or business school training. The Financial Expert Guide for Family Law Judges and Attorneys provides a solid, readable summary of the topics that matter most when facing the challenge of litigating or negotiating divorces where businesses are at stake. Those are the cases we want in our practices, and this book will build the confidence to handle them skillfully.” 

Brian C. Vertz, Esq., MBA 
Pollock Begg, Pittsburgh 
Author, Vertz & Benson on Divorce Taxation (2023) 


As a Fellow of the American Academy of Matrimonial Lawyers, I have been involved with many valuation experts and read many books and treatises on valuations of business interests in the family law arena. Ron and Kev have accomplished what, in my view, is the single most important goal that every valuation expert should have: They have managed to simplify—for judges and attorneys both—a subject that is complex and can easily be confusing. Many valuation experts have failed, in writing their reports or in their expert testimony, by being too complex, too esoteric, and maybe even a bit condescending. Nothing is worse than the expert who makes a judge feel threatened or uneducated. They are a lawyer’s worst nightmare. Ron and Kev have solved this challenge brilliantly—this is a wonderful, clear, understandable, and functional guide that makes the difficult easier, the complex more simple, and the mysterious more clear. This is a must-read guide for every family lawyer and every judge. I particularly liked the chapter on critiquing a business valuation report—it is a gold mine for family lawyers.  

Once you have read this guide, your next trial will be better—the issues will be more clearly presented, and the judicial officer will be thanking you (even if he or she doesn’t say so)!” 

David W. Griffin, Esq. 
Rutkin, Oldham & Griffin, L.L.C.
Fellow, American Academy of Matrimonial Lawyers 


“I so enjoyed reading the Financial Expert Guide for Family Law Judges and Attorneys. It provides clear and practical background and suggestions on issues in many family law cases, that are sure to be useful to its audience. I particularly liked Chapter 6 on Financial Forensics. There are so many great ideas in that chapter! I think the authors have seen it all. There is even a section on cryptocurrency. This is a great resource for the matrimonial community.”

Stacy Preston Collins, CPA/ABV, CFF 
Managing Director
Financial Research Associates 


“As a divorce lawyer specializing in complex family law, I am constantly on the lookout for valuable resources. The benefit to Financial Expert Guide for Family Law Judges and Attorneys is that it offers a great way to find information with a high level of sophistication and detail quickly. The most interesting chapter of the book, ‘Critiquing a Business Appraisal Report,’ delves deep into critical evaluation of a business appraisal. The authors dissect the components of the report and explain how to avoid the ‘circle of death’ when engaging with the opposing expert and liken the process to a legal cage match. Their ability to translate complex financial jargon to understandable language is a welcome relief, making this chapter accessible even to those without extensive financial expertise. 

“What sets this book apart is the authors’ comprehensive experience in explaining the technical aspects of business valuation to judges and attorneys. Readers will be well-prepared with this book.”
 
Lisa Ann Sharpe, Attorney
Lasher Holzapfel Sperry & Ebberson PLLC
Fellow, American Academy of Matrimonial Lawyers