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New Toolkit for Passive Appreciation Takes Shape

BVR and Dr. Ashok Abbott (West Virginia University) are developing an automated tool and supporting documentation that embodies his peer-reviewed methodology for separating active from passive appreciation of business assets in a divorce context.

Business Valuation Case Law Yearbook, 2022 Edition

January 2022 PDF, Softcover (177 pages)

BVR (editor)

Business Valuation Resources, LLC

The legal coverage and in-depth analysis from the BVR legal team deliver lessons learned to help appraisers reach better and more defensible valuation conclusions. All the cases featured in this book impart important lessons about applicable legal principles, approved and discredited valuation methodology, and the act (and art) of presenting expert opinions. This must-have collection benefits both the generalist as well as the specialist.

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Asare v. Asare

In this marital dissolution appellate case, the appellate court must resolve a number of issues related to the equitable distribution of the marital estate. On most issues, the appellate court affirmed the trial court. However, the appellate court reversed the trial court on the issue of how much passive appreciation related to an investment account was includable in the marital estate.

North Carolina Appellate Court Reverses Trial Court on Amount of Passive Appreciation in an Investment Account

In this marital dissolution appellate case, the appellate court must resolve a number of issues related to the equitable distribution of the marital estate. On most issues, the appellate court affirmed the trial court. However, the appellate court reversed the trial court on the issue of how much passive appreciation related to an investment account was includable in the marital estate.

Statistical Methodologies for Analyzing Active and Passive Appreciation

A rundown of the existing quantitative models that have been developed that separates the active and passive appreciation of a closely held business involved in a marital dissolution case. The models seek to statistically identify market forces that reasonably cause changes in the value of assets.

Active and Passive Appreciation in Valuation: Finding the Line

Breaking up is hard, but harder still is appropriating the appreciation of the marital estate during the marriage. The most troubling issue with active and passive appreciation in divorce cases is applying a method based on sound theory, good empirical evidence, and a clear common-sense framework. Ashok Abbott demonstrates a methodology and supporting evidence to isolate passive appreciation successfully. By working through a practice-ready example, you’ll be sure to come away with a new appreciation ...

Letter to the Editor: Comments on Using Jensen’s Alpha for Active and Passive Appreciation

This is a Letter to the Editor from Ashok B. Abbott, Ph.D. (West Virginia University), in response to a prior article on segregating passive from active increases in the value of an asset in the context of marital dissolution.

Letter to the Editor: Response to Dr. Abbott’s Comments on Using Jensen’s Alpha for Separating Active and Passive Appreciation

This is a Letter to the Editor from Mark Filler that responds to comments from Dr. Ashok Abbott about Mr. Filler’s prior article on the use of Jensen’s alpha. Dr. Abbott’s comments can be found elsewhere in this issue.

Bates v. Bates

In appreciation case, appeals court says it was error to value owner’s separate, minority interest in car dealership based on buy-sell agreement; however, alternate valuation by nonowner spouse’s expert offered based on standard methods, including use of discounts, provided “appropriate valuation.”

Buy-Sell Stock Agreement Does Not Determine Value of Owner Spouse’s Separate Property

In appreciation case, appeals court says it was error to value owner’s separate, minority interest in car dealership based on buy-sell agreement; however, alternate valuation by nonowner spouse’s expert offered based on standard methods, including use of discounts, provided “appropriate valuation.”

Papin v. Papin

High court upholds classification and valuation of husband’s investment management business, noting business consists of book of business, which can exist without owner, and owner’s skills and expertise, which are his separate property; proceeds from sale of book of business are community property.

Trajectory of Owner’s Investment Management Business Raises Characterization and Valuation Issues

A complex divorce case in front of the Idaho Supreme Court featuring an investment management business that the husband had set up before and sold during the marriage raised noteworthy issues about the nature of the business and the characterization and valuation of its various components (book of business vs. owner’s skills). A related flashpoint was whether the nonowner spouse was entitled to any appreciation (enhancement) in the value of the business that occurred ...

Court Remands for Determination of Separate Asset’s Premarital Value

Appellate court affirms that increase in value of husband’s company is subject to equitable distribution but says trial court erred when it assumed company had zero value on the date of marriage because company then was not profitable; court remands for determination of company’s premarital value.

Appreciation in Liquor Company’s Value Represents Marital Property, Appeals Court Finds

Appeals court upholds ruling that appreciation in value of husband’s interest in family liquor business is marital asset; trial court carefully analyzed husband’s role in company to find he “substantially contributed” to the increase and husband stipulated to wife’s substantial contribution.

Fox v. Fox

Appellate court affirms that increase in value of husband’s company is subject to equitable distribution but says trial court erred when it assumed company had zero value on the date of marriage because company then was not profitable; court remands for determination of company’s premarital value.

Lucchesi v. Lucchesi

Appeals court upholds ruling that appreciation in value of husband’s interest in family liquor business is marital asset; trial court carefully analyzed husband’s role in company to find he “substantially contributed” to the increase and husband stipulated to wife’s substantial contribution.

Court Looks to Owner’s ‘Proportionate’ Share in Business to Quantify Appreciation in Value

In quantifying marital portion of appreciation of owner spouse’s separate property, trial court relies on owner’s “proportionate” share in company but also considers expert testimony as to third parties’ efforts and owner’s role in generating revenue; court rejects passive factor analysis.

Herbert v. Joubert

In quantifying marital portion of appreciation of owner spouse’s separate property, trial court relies on owner’s “proportionate” share in company but also considers expert testimony as to third parties’ efforts and owner’s role in generating revenue; court rejects passive factor analysis.

Using Jensen’s Alpha to Separate Active and Passive Appreciation

The author presents an alternate approach (Jensen’s alpha) to segregating passive from active increases in the value of a marital asset. An example is presented of an automobile dealer.

Hebert v. Cote

In appreciation in value case, court excludes nonowner spouse’s valuation testimony under Daubert, finding expert’s calculation of “minimum marital component” is not a methodology approved under the applicable SSVS for determining fair market value and also violated other SSVS requirements.

Court Rejects Appreciation in Value Calculation, Citing SSVS Violations

In appreciation in value case, court excludes nonowner spouse’s valuation testimony under Daubert, finding expert’s calculation of “minimum marital component” is not a methodology approved under the applicable SSVS for determining fair market value and also violated other SSVS requirements.

Letter to the Editor: Response to Article on Separating Active and Passive Appreciation in the Value of a Marital Asset

The author says there are flaws in Dr. Ashok Abbott’s approach to segregating passive from active increases in the value of a marital asset—and he presents an alternate approach.

Tenn. Appeals Court says DLOM in divorce appropriate under facts of case

A recent Tennessee appeals court decision found that the trial court presiding over a drawn-out divorce had discretion to apply a marketability discount when it valued the owner-spouse’s interest in two companies in 2016.

Tennessee appeals court allows slight DLOM in divorce case

Valuators working on divorce cases in Tennessee know that the jurisprudence on the use of the marketability discount has been nebulous.

Crocker v. Greater Colo. Anesthesia

Appeals court agrees with trial court that deal price does not reflect target’s fair value because price resulting from merger of medical entities compensated shareholders for agreeing to substantial future pay reduction and for making other concessions.

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