Maligned and Abused Excess Earnings Method Endures—But Why?
During a recent BVR Power Panel webinar on divorce valuations, the panel wondered why, given all the drawbacks of the excess earnings method, it continues to be used, especially for small businesses and professional practices. Also, insights into how judges evaluate an analyst’s use of this method.
Appellate court affirms decision regarding overstated projections
A big red flag when using financial projections in a DCF is relying on ones that were prepared for some other purpose, especially if there was a tendency to paint a rosy picture.
Hetrick v. iink
The FRE 702 rules were modified in December 2023 to strengthen the qualifications for admittance of expert testimony. In this case, the Virginia U.S. District Court allowed the expert to testify and denied the Daubert motion to exclude the testimony. Among other things, the court found that the testimony was relevant to the case at hand.
U.S. District Court (Virginia) Denies Daubert Motion to Exclude Under New (2023) FRE 702
The FRE 702 rules were modified in December 2023 to strengthen the qualifications for admittance of expert testimony. In this case, the Virginia U.S. District Court allowed the expert to testify and denied the Daubert motion to exclude the testimony. Among other things, the court found that the testimony was relevant to the case at hand.
Athea v. Athea
In this divorce case, the Florida appellate court upheld the trial court’s acceptance of the husband’s valuation expert including the exclusion of personal goodwill. The court found the valuation and exclusion well supported by evidence and thereby will not be reversed. The court remanded the determination of monthly income of the wife.
Appellate Court Upholds Exclusion of Personal Goodwill—Well Supported
In this divorce case, the Florida appellate court upheld the trial court’s acceptance of the husband’s valuation expert including the exclusion of personal goodwill. The court found the valuation and exclusion well supported by evidence and thereby will not be reversed. The court remanded the determination of monthly income of the wife.
Hitchner busts myth about using a CCF on a large firm
Many valuation analysts “would never be caught dead” valuing a large business using a capitalized cash flow (CCF), writes Jim Hitchner (Valuation Products and Services) in the latest issue of Hardball With Hitchner.
Bergquist v. Bergquist
The appellate court (Indiana) found that the circuit court abused its discretion when valuing the wife’s business by not determining a value based on there being no evidence that would support such a value. The appellate court remanded the issue of the value of the business for determination based on evidence that would support it.
Indiana Appellate Court Remands to Revalue Wife’s Business Supported by the Evidence
The appellate court (Indiana) found that the circuit court abused its discretion when valuing the wife’s business by not determining a value based on there being no evidence that would support such a value. The appellate court remanded the issue of the value of the business for determination based on evidence that would support it.
BV News and Trends March 2024
A monthly roundup of key developments of interest to business valuation experts.
Demenno v. Demenno
The Alaska Supreme Court affirmed the judgment of the trial court in determining the value of active appreciation and affirmed that the property in question remained the husband’s separate property and did not transmute to the marital estate.
Supreme Court (Alaska) Affirms Trial Court Calculation of Active Appreciation
The Alaska Supreme Court affirmed the judgment of the trial court in determining the value of active appreciation and affirmed that the property in question remained the husband’s separate property and did not transmute to the marital estate.
Court KO’s market comp analysis due to industry choice
What business is your subject company in?
In re Marriage of Bornhofen
In this Illinois divorce case, the trial court adopted the value of the husband’s expert as to the value of the husband’s business and rejected the wife’s expert’s value. The trial court determined that the husband’s expert’s value was the only credible value. The wife sought to introduce additional valuation evidence, which the trial court also rejected. The appellate court affirmed the decision of the trial court.
Appellate Court (Illinois) Affirms Trial Court’s Rejection of One Expert’s Business Value and Adopts the Other Expert’s Value
In this Illinois divorce case, the trial court adopted the value of the husband’s expert as to the value of the husband’s business and rejected the wife’s expert’s value. The trial court determined that the husband’s expert’s value was the only credible value. The wife sought to introduce additional valuation evidence, which the trial court also rejected. The appellate court affirmed the decision of the trial court.
Doe v. Trs. of Dartmouth Coll.
The defendant in this action, trustees of Dartmouth College, moved to have the testimony of the plaintiff’s expert as to lost wages and lost earning capacity excluded. The plaintiff had filed an action against the defendant for breach of contract and violation of Title IX by expelling him from Dartmouth’s Geisel School of Medicine. The court granted in part and denied in part the motion to exclude.
U.S. District Court Allows Expert Testimony on Lost Wages and Lost Earning Capacity in a Title IX Private Action
The defendant in this action, trustees of Dartmouth College, moved to have the testimony of the plaintiff’s expert as to lost wages and lost earning capacity excluded. The plaintiff had filed an action against the defendant for breach of contract and violation of Title IX by expelling him from Dartmouth’s Geisel School of Medicine. The court granted in part and denied in part the motion to exclude.
In re Marriage of Sommerville
This Iowa divorce case dealt with an appeal by the wife of the determined earnings of the husband and awards of child support and spousal maintenance. She also contended that the husband dissipated marital assets by failing to pay taxes and incurring penalties and interest. The appellate court determined that the trial court erred in determining the husband’s income and thus remanded for redetermination of child support and spousal support awards. The appellate court also affirmed the determination that the husband did not dissipate marital assets and affirmed the property division. Issues of evidence to determine income or earnings were also discussed.
Appellate Court Remands for New Determination of Husband’s Earnings, Affirms No Dissipation of Assets
This Iowa divorce case dealt with an appeal by the wife of the determined earnings of the husband and awards of child support and spousal maintenance. She also contended that the husband dissipated marital assets by failing to pay taxes and incurring penalties and interest. The appellate court determined that the trial court erred in determining the husband’s income and thus remanded for redetermination of child support and spousal support awards. The appellate court also affirmed the determination that the husband did not dissipate marital assets and affirmed the property division. Issues of evidence to determine income or earnings were also discussed.
Global BVU News and Trends June 2023
Business valuation news from a global perspective.
Chalasani v. Bollempalli
In this Arizona appeal of a divorce case, the husband physician did not engage a valuation expert and impeded the discovery of information relevant to the valuation to the wife’s valuation expert. The Appeals Court affirmed the trial court’s decision of value and its apportionment of 50% of the husband’s value in the practice, noting the lack of an expert by the husband and the failure of the husband’s practice to cooperate with the wife’s expert.
Appeals Court Affirms Value of Husband’s Medical Practice—He Fails to Provide Expert Testimony as to the Value
In this Arizona appeal of a divorce case, the husband physician did not engage a valuation expert and impeded the discovery of information relevant to the valuation to the wife’s valuation expert. The Appeals Court affirmed the trial court’s decision of value and its apportionment of 50% of the husband’s value in the practice, noting the lack of an expert by the husband and the failure of the husband’s practice to cooperate with the wife’s expert.
Global BVU News and Trends May 2023
Business valuation news from a global perspective.
Reasonable comp at center of dental practice dispute
In a Massachusetts divorce case, the wife argued that the normalization adjustments to her salary from her dental practice were based on unreliable data.
Court OKs including PPP loan in cash flows for CCF
In a Vermont divorce case, the valuation expert for the husband valued his business by excluding proceeds from a Paycheck Protection Program (PPP) loan as a one-time windfall for purposes of a capitalized cash flow (CCF) analysis.