New York Family Life Monthly > Business Valuation in a Collaborative Divorce

Posted on July 21, 2013

0


From Scott DeMarco, CBA, Steve Egna, CBA, and Michael D. Assaf, Esq.:

In a collaborative divorce setting, the following appraisal scenarios are possible. These scenarios are ordered from least collaborative to most collaborative, and from the presumptively least convincing opinions of value to the most convincing. However, the credibility of an appraisal is primarily influenced by the appraiser’s work product and professional experience. The three scenarios are:


1. One Appraiser, Jointly Retained

  • One business appraiser is retained at the outset of the engagement.
  • The collaborative law participation agreement and the business appraiser’s engagement letter state that the parties can only retain one business appraiser, if this scenario is chosen.
  • The participants in the collaborative divorce may or may not be bound by the appraised value resulting from the valuation.

2. Two Appraisers, Jointly Retained

  • Two business appraisers are retained at the outset of the engagement.
  • One business appraiser performs the due diligence and creation of the valuation report, and the other business appraiser reviews the valuation report.
  • The business appraiser that reviews the report creates a list of the key items that he or she disagrees with, and computes the resulting difference in value.
  • At the outset of the valuation process, the participants may stipulate that the value of the business will be the average of the two appraised values.

3. Collaborative Valuation

  • Two appraisers are jointly retained at the outset of the engagement.
  • The appraisers work together to produce a single document and information request.
  • The appraisers review the documents produced and discuss the valuation methods to consider.
  • The appraisers participate in a work session to create the initial valuation methods, and perform the necessary research.
  • Following the working session, the appraisers work independently on their allocated responsibilities, and then participate in another work session to arrive at an indication of value for the subject interest in the subject company.
  • The appraisers produce a letter or summary report that describes the valuation methods performed and the mutual opinion of value.
  • The participants in the collaborative divorce may or may not be bound by the appraised value resulting from the valuation.

Choosing the Best Option

The scenarios discussed above can be modified to fit specific situations, but the incentives of all stakeholders in the process must be reviewed to ensure that a fair opinion of value will result.

One of the important topics for the parties to discuss in choosing how to conduct their business valuation relates to total cost for each one of these scenarios. In general, each one should produce total fees that are within a comparable range. The fees paid for scenario one — one appraiser, jointly retained — may be the least expensive out of the three set-ups; however, this method allows for the most one-sided opinion of value.

Scenarios numbers two and three should generally cost somewhat more than the first, but the credibility of the appraised value should be greater. In addition, in a collaborative valuation, the business appraisers are able to efficiently reconcile differences in opinions during working sessions, rather than through formal reports and expensive testimony.

Read more at New York Family Law Monthly.

Tagged: , ,
Posted in: Collaborative Attorney, Collaborative Divorce, Collaborative Financial Professional