Divorce and the Closely-Held Vermont Business Owner
The court further states that,
There are probably few assets whose
valuation imposes as difficult, intricate
and sophisticated a task as interests in
close corporations. They cannot be realistically evaluated by a simplistic approach which is based solely on book
value, which fails to deal with the realities of the goodwill concept, which
does not consider investment value of
a business in terms of actual profit, and
which does not deal with the question
of discounting the value of a minority
interest.
Who Should Perform the
Business Valuation?
If the business is to be included in the
dissolution of the marital estate, it is highly
recommended you have a business valuation performed by an appraiser who is:
• Independent: An attorney is an advocate of the client, whereas an appraiser is only an advocate of the business’
value. Therefore, having your client’s
CPA, or other individual they already
have an existing personal or professional relationship with, perform the
business valuation is a big no-no. Opposing legal counsel (for the non-owner spouse) can easily dispute the credibility and objectivity of the business
valuation report. Not only that, any appraiser with such an existing relationship and who knowingly accepts such
an assignment, is bordering on a violation of professional ethics. Further, an
appraiser should not have a contemplated financial or vested interest in
the valuation opinion outcome.
• Certified: An individual may have an
alphabet soup of letters after their
name, but at least one set of those letters should be from a recognized professional business valuation organization. Many courts have disallowed
valuations performed by uncertified
individuals. Hiring an uncertified appraiser wastes your time and money.
Moreover, a valuator certified by a professional organization must adhere to
ethics, report writing standards, and
codes of conduct, which adds another layer of inoculation to the valuation
opinion. The American Society of Appraisers (ASA) is an example of a nonprofit appraisal organization that has
such ethics and standards in place to
oversee appraiser conduct.
• Experienced: Unfortunately, it’s not
enough to hire an independent, certified appraiser. You also must hire one
who has substantial valuation experience in your client’s company’s industry. Experience is critical and typically can make or break the validation of
the appraiser’s value opinion, especially if your company operates in a niche
market. Some industries have specific nuances or subtleties of which only
an experienced appraiser in that field
has knowledge. Furthermore, your appraiser may be required to provide a
verbal attestation of the value opinion
in court.
Be Prepared
Although it may seem a bit pessimistic
to suggest planning for divorce, the consequences of not planning for any untimely
life event, whether it is divorce, disability,
or death, can have a devastating financial
impact on your client’s business. Regular
business valuations allow you to proactively care for the viability of your client’s business investment and therefore anticipate
an untimely event requiring immediate liquidity. A business owner who is contemplating marital dissolution should always
seek, with their legal counsel, advice to determine the scope of the valuation engagement and the necessary course of action.
Legal counsel should decide if the appraisal professional has the required experience
and objectivity to satisfy the efficacy litmus
test.
____________________
Erin Durand Hollis, ASA, has more than
fourteen years of business valuation and
tax planning related experience. She is a
qualified expert witness and also has extensive experience for clients in both the
United States and Canada for various valuation purposes and a multitude of industries. Her other expertise includes transfer
pricing assignments. She has written num \