Hypothetical liquidation KO’d in shareholder dispute
In an Iowa case, minority owners of a family farm were to be bought out and the experts for both sides agreed that the net asset method was the appropriate way to value the operation.
Walker v. Daniels
The appellate court was left with two questions: what was the proper date of valuation for the minority shares and what was the proper value of the shares. Three brothers were in a dispute with their two sisters. The sisters were to receive compensation in the form of a buyout of their shares in a shareholder oppression dispute. The appellate court (Iowa) concurred with the trial court and affirmed its judgment.
Iowa Appellate Court Affirms Date of Value and Value of Farming Operation in Shareholder Oppression Suit
The appellate court was left with two questions: what was the proper date of valuation for the minority shares and what was the proper value of the shares. Three brothers were in a dispute with their two sisters. The sisters were to receive compensation in the form of a buyout of their shares in a shareholder oppression dispute. The appellate court (Iowa) concurred with the trial court and affirmed its judgment.
Two Ways to Treat the Vanishing Bonus Depreciation Tax Break
Michelle Gallagher and Nathan Olberding (both with Adamy Valuation) present a nice example of how to consider the sunsetting of the bonus depreciation rules in a valuation. The rules were enacted by the Tax Cuts and Jobs Act (TCJA).
Business tax break extensions stalled
At the time of this writing, the tax extenders legislation is still tied up in the Senate.
No do-over for valuation of business hit by COVID-19
In a Wisconsin marital dissolution case, COVID-19 negatively impacted the husband’s hair salon business, which had to shut down for a while.
In re Marriage of Gill
The husband appealed the circuit court’s decision regarding his divorce decree and an order denying his motion to reconsider issues regarding the parties’ property division. He argued the circuit court erred in allocating less than half of the parties’ tax liability to the wife. He also argued the circuit court erred in denying his motion to reopen evidence regarding the impact of COVID-19 on his salon business. The appellate court rejected his arguments and affirmed the circuit court.
Appellate Court (Wisconsin) Affirms Trial Court Allocation of Tax Liability and Business Value in Divorce
The husband appealed the circuit court’s decision regarding his divorce decree and an order denying his motion to reconsider issues regarding the parties’ property division. He argued the circuit court erred in allocating less than half of the parties’ tax liability to the wife. He also argued the circuit court erred in denying his motion to reopen evidence regarding the impact of COVID-19 on his salon business. The appellate court rejected his arguments and affirmed the circuit court.
Divorce valuation is too little, too late
This is another in a rash of cases where one side either did not engage a valuation expert or did not use the expert to the best advantage.
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.
Pemberton v. Pemberton
In this complex Minnesota divorce case, the appellate court was taxed with multiple issues to decide. Among those issues was the value of the two businesses the husband owned in whole or part. The district court determined values based on the wife’s expert’s valuation report. The husband’s expert was not engaged to give a valuation opinion. The appellate court did not take the husband’s expert’s criticisms and comment on value into account. The appellate court also found no error in the district court dividing the combined 2020 tax liabilities for the parties in two and allocating half to each party, nor in its decision not to allocate the husband’s excess tax paid as a result of filing separately in 2018 and 2019.
Appellate Court Affirms Value of Businesses and Tax Liability Issue
In this complex Minnesota divorce case, the appellate court was taxed with multiple issues to decide. Among those issues was the value of the two businesses the husband owned in whole or part. The district court determined values based on the wife’s expert’s valuation report. The husband’s expert was not engaged to give a valuation opinion. The appellate court did not take the husband’s expert’s criticisms and comment on value into account. The appellate court also found no error in the district court dividing the combined 2020 tax liabilities for the parties in two and allocating half to each party, nor in its decision not to allocate the husband’s excess tax paid as a result of filing separately in 2018 and 2019.
Faulty information slices personal goodwill in two
In a Utah divorce case, both the joint valuation expert and the expert the husband engaged agreed to the amount of personal goodwill in the husband’s consulting business.
Rothwell v. Rothwell
In an appeal of a Utah divorce case, the court affirmed the district court’s determination of value of the husband’s businesses. The district court allowed the exclusion of personal goodwill (in accordance with Utah case law Sorensen v. Sorensen) but did not allow the deduction of estimated tax to be paid on a hypothetical sale of the business at some future date.
Utah Appellate Court Excludes Personal Goodwill, Disallows Reduction for Taxes on Hypothetical Sale
In an appeal of a Utah divorce case, the court affirmed the district court’s determination of value of the husband’s businesses. The district court allowed the exclusion of personal goodwill (in accordance with Utah case law Sorensen v. Sorensen) but did not allow the deduction of estimated tax to be paid on a hypothetical sale of the business at some future date.
No deduction for tax in shareholder buyout
In a North Dakota partnership dissolution case, the defendants argued on appeal that the district court erred in its valuation.
Sproule v. Johnson
In this partnership dissolution case, the North Dakota Supreme Court affirmed the district court’s decision to use an appraisal of the Canadian entity as of 2019 instead of a value from an earlier agreement in principal. The later date was within the purview of the district court’s flexibility. Further, the Supreme Court affirmed the district court’s decision not to reduce the value of a partnership asset of stock in a Canadian corporation for taxes.
North Dakota Supreme Court Affirms Valuation Date, Affirms No Deduction for Taxes in Determining Stock Value
In this partnership dissolution case, the North Dakota Supreme Court affirmed the district court’s decision to use an appraisal of the Canadian entity as of 2019 instead of a value from an earlier agreement in principal. The later date was within the purview of the district court’s flexibility. Further, the Supreme Court affirmed the district court’s decision not to reduce the value of a partnership asset of stock in a Canadian corporation for taxes.
In re Marriage of Brown
In this Illinois divorce case, the appellate court affirmed the circuit court’s determination of value of the husband’s business by the husband’s expert even though evidence was presented that the expert did not follow the AICPA Business Valuation Standards. Further, the husband’s expert did not consider any enterprise goodwill and used an unorthodox method to determine the value of the business. The wife’s expert asserted that the husband’s expert did not provide a fair market value but rather did a “calculation.” The appellate court also affirmed the circuit court’s decision not to exclude the testimony of the husband’s expert witness.
Illinois Appellate Court Does Not Accept Valuation Including Enterprise Goodwill
In this Illinois divorce case, the appellate court affirmed the circuit court’s determination of value of the husband’s business by the husband’s expert even though evidence was presented that the expert did not follow the AICPA Business Valuation Standards. Further, the husband’s expert did not consider any enterprise goodwill and used an unorthodox method to determine the value of the business. The wife’s expert asserted that the husband’s expert did not provide a fair market value but rather did a “calculation.” The appellate court also affirmed the circuit court’s decision not to exclude the testimony of the husband’s expert witness.
Appellate court KOs unaccrued interest on dissipated assets
In a divorce case, an appellate court vacated the order of the trial court that erroneously charged the husband with over $4 million in unaccrued interest on marital assets that the husband fraudulently dissipated from the marital estate.
Mohen v. Mohen
In the trial court (TC), the wife was awarded $4,360,158 of mostly unaccrued interest on the corpus of trusts the husband set up unilaterally for the children. The TC took the value of those trusts, $9,291,372, as part of the marital estate. The TC also added $990,945 of interest that the trusts had received and the remaining unaccrued future interest for a total value of “distribution” paid to the husband of $14,642,475 related to the trusts. The appellate court (AC) determined that the future interest was future interest and, thus, not part of the marital estate. However, the AC let stand the determination that the value of the trusts were to be treated as a distribution to the husband.
Husband Dissipates Assets by Placing Them in Trusts for the Children, but the Appellate Court Does Not Allow Unaccrued Interest
In the trial court (TC), the wife was awarded $4,360,158 of mostly unaccrued interest on the corpus of trusts the husband set up unilaterally for the children. The TC took the value of those trusts, $9,291,372, as part of the marital estate. The TC also added $990,945 of interest that the trusts had received and the remaining unaccrued future interest for a total value of “distribution” paid to the husband of $14,642,475 related to the trusts. The appellate court (AC) determined that the future interest was future interest and, thus, not part of the marital estate. However, the AC let stand the determination that the value of the trusts were to be treated as a distribution to the husband.
Recap of recent BV cases of note
A number of recent cases have emerged that contain various valuation issues.