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News & PressArticlesGottlieb Lectures at the IBA BV Conference
REPRINTED FROM
SHANNON PRATT’S BUSINESS VALUATION UPDATE
SEPTEMBER 2005
DIVORCE AND BUSINESS APPRAISAL
MARK S. GOTTLIEB, CPA/ABV, CVA, DABFA
MARK S. GOTTLIEB, CPA, PC
GREAT NECK, NY
In this entertaining presentation, Gottlieb used anecdotes and personal war stories to review the appraiser’s role in divorce proceedings. There is great demand for business appraisal services in marital dissolutions, the litigious and contested nature of which magnifies the complexity of business appraisal, so this area of practice can be quite lucrative, but also quite demanding.
The appraiser can be hired by the business owner spouse (“money spouse”), by the other spouse (“out spouse”), by the court as a neutral, or by an attorney as a non-expert consultant. Gottlieb’s advice is that regardless who is the hiring party, the appraiser must remain an advocate only for the appraiser’s professional opinion, not for anyone else. Where the appraiser serves as a consultant, Gottlieb advises that the retainer agreement require the client (spouse), not the attorney, to be contractually obligated to pay the appraiser’s fee, and that it stipulate that everything is covered by the attorney-client privilege.
In addition to being consistent and being aware of one’s “shelf life” and reputation, the appraiser should gear his or her report for litigation. This means that the report will be short and that the appraiser’s position must be crystal clear. Other documents used in the divorce setting that may differ from traditional appraisal engagements include: net worth statements; depositions or summaries of transcripts; other appraisal reports of the subject company; or other accounting, lifestyle, and financial analyses pertaining to the litigants.
Because this is very litigious area, the appraiser is not going to readily get reliable, credible information: not only does the appraiser have to go through hoops to get such information, but also must carefully explain his or her assumptions. Gottlieb counsels appraisers in this area to review the definition of the standard of value with the attorney, so everyone is on the same page, and to know what the case law of the jurisdiction says, as well as what judges do.
Finally, substantive areas to focus on in the divorce setting include: normalizing income streams; non-recurring income or expenses; discretionary expenses; methodology used; non-arm’s-length transactions; key person considerations; the reasonableness of management’s projections; minority and marketability discounts; income tax consequences; and appraisal multiples or cap rates.
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