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Due to the One Big Beautiful Bill (OBBB), beginning January 1, 2026, the lifetime exemption amounts for gift and estate taxes increase to $15 million per person. For married couples, that effectively means $30 million can be transferred without federal gift/estate tax. Unlike the temporary increases under the 2017 Tax Cuts and Jobs Act (TCJA), the OBBBA makes this increase permanent, unless changed by future legislation. The valuation of an estate is not a mechanical exercise; it is a nuanced process that can significantly impact the amount of tax owed. For high-net-worth families, estates often contain complex assets beyond cash and publicly traded securities. These may include operating businesses, family limited partnerships, hedge fund or private equity interests, commercial real estate, intellectual property, or other illiquid holdings. The valuation of an estate is not a mechanical exercise; it is a nuanced process that can significantly impact the amount of tax owed. For high-net-worth families, estates often contain complex assets beyond cash and publicly traded securities. These may include operating businesses, family limited partnerships, hedge fund or private equity interests, commercial real estate, intellectual property, or other illiquid holdings. Key valuation considerations include: Marketability Discounts: Interests in privately held businesses or partnerships are generally less liquid than publicly traded stocks. Applying appropriate discounts for lack of marketability (DLOM) can materially reduce the reported value of these interests. Control Premiums or Discounts: The level of control associated with a business interest, whether majority, minority, or non-controlling, directly affects value. Recognizing and justifying these […]

I have been asked to speak at the 2025 AICPA Annual Business Valuation and Forensic Accounting Conference about preparing rebuttal business valuation reports. The audience will undoubtedly be primarily comprised of fellow credentialed business valuation professionals, but the topic is so important, I thought it is worthwhile to write this blog post for our attorney subscribers. In business litigation, few tools are as powerful—and as misunderstood—as the rebuttal business valuation report. Unlike an original valuation, a rebuttal is not a second opinion of value. Its mission is to interrogate the opposing expert’s conclusion and determine whether it rests on sufficient facts, reliable principles, and a sound application of those principles. When executed properly, a rebuttal can dramatically influence the outcome of a case by demonstrating material errors that undermine an opposing expert’s credibility. A rebuttal report is not an invitation to revalue the company. Instead, it stays within the “lanes” the opposing expert has created. The objective is to test whether the other side has honored the governing standard of value, the proper level of value, and the valuation date, and whether the inputs and methods are both reliable and replicable. Only when the flaws are so pervasive that a value range or corrected conclusion becomes necessary should a rebuttal go beyond a critique. In most cases, a rebuttal that is tightly focused, standards-compliant, and clear is more persuasive to judges and juries than an expansive alternative valuation. Professional Standards Professional standards supply the framework that gives a rebuttal its […]

Information presented on a company’s financial statements may not always be meaningful from a valuation perspective – even if it follows Generally Accepted Accounting Principles (GAAP). Whether financial information is obtained from business income tax returns or audited financial records, valuation experts often make adjustments to get a clearer picture of a company’s financial position, market risk, and ability to generate cash flow in the future. Sometimes, these adjustments may be due to the business owner’s nefarious actions. In other cases, they may be due to elections in accounting methodology or procedures. Although these adjustments vary from case to case, many fall into one or more of the following types when valuing a business interest. Nonstandard accounting practices Extraordinary or nonrecurring items Hidden assets or liabilities, and/or Discretionary spending Nonstandard Accounting Practices A valuation expert may estimate value by using pricing multiples derived from comparable private and public transactions (the market approach) and discount rates derived from returns on public company stocks (the income approach). Thus, if the subject company deviates from how other companies in its industry typically report transactions, the valuator may need to make adjustments. Certain financial reporting practices may require adjustments if the subject company’s methods differ from industry norms. Examples include differences in inventory, depreciation, or revenue recognition methods. For example, if a company reports inventory using the last-in, first-out method (LIFO) but other companies in its industry typically use the first-in, first-out (FIFO) method, an adjustment may be needed to normalize the subject company’s […]

In divorce proceedings involving a privately owned business, three recurring questions often drive the financial strategy: What is the business actually worth? How does business value intersect with spousal support? Is the business owner misrepresenting income or assets? Each of these issues implicates discovery scope, valuation methodology, and litigation risk. Attorneys who identify and address them early gain strategic leverage, whether in settlement negotiations or courtroom proceedings. Issue #1: What Is the Business Actually Worth? Valuation experts generally apply one or more of the three accepted approaches: Asset Approach: Net asset value based on the fair market value of the business’s underlying assets and liabilities. Market Approach: Comparison to similar businesses sold under comparable conditions. Income Approach: Present value of anticipated economic benefits, typically based on historical and/or projected earnings. These methodologies are grounded in an analysis of the company’s financial records, but accurate results require more than just tax returns and financial statements. We frequently encounter cases where the non-owner spouse lacks access to meaningful operational data. When the expert is deprived of: Site visits, Management interviews, or Internal financial records (e.g., general ledger, merchant accounts, POS systems), There’s a risk of misvaluing the business. One case involved a restaurant owner who maintained two sets of books – only a subpoena of raw POS data revealed the true sales. If the business was established prior to the marriage, courts may focus on marital appreciation rather than total value. Estimating appreciation requires: A reliable value at the date of marriage, […]

What happens when legacy, loyalty, and litigation collide? For attorneys representing family-owned businesses, the valuation process often uncovers more than just numbers. From off-the-books perks to underpaid relatives, these enterprises can present complex, fact-intensive scenarios that demand forensic scrutiny. With family enterprises representing more than 60% of privately held companies in the U.S., their valuation is often a pivotal issue in disputes over divorce, shareholder oppression, tax compliance, or succession planning. Yet their informal management style and personal entanglements can complicate even the most fundamental assumptions behind fair market value. As business valuation and forensic accounting professionals, we’ve routinely encountered four recurring challenges that attorneys should consider when engaging experts in these cases. 1. Related-Party Compensation: Is Payroll Inflated or Distorted? In family-run businesses, payroll often serves dual roles: compensation and succession planning. Nepotism may skew hiring decisions, and salaries may not reflect market rates or job responsibilities. In litigation, this matters. For example, in a shareholder dispute involving a second-generation manufacturing company, our analysis showed that two family members employed in non-operational roles received six-figure salaries and luxury vehicle stipends. We normalized these expenses to reflect what a third-party buyer would pay in a true arm’s-length scenario, resulting in a material adjustment to the company’s earnings base.[1] Practical Considerations: Does the family member have qualifications commensurate with their pay? Are perks such as country club dues, personal travel, or under-reported cash compensation distorting EBITDA? Is there documentation or only verbal justification for compensation decisions? Valuation Impact: Adjustments are often […]

There were many stark differences between the two presidential candidates. Setting aside their personal demeanors, the Republicans and Democrats shared very little common ground concerning their vision for the Country. These differences could not have been more apparent than the issues of the economy, which included taxes, trade, and government regulation, to name a few. Today, Donald Trump will be sworn in for his second term, and all eyes will be focused on how quickly he will effectuate or abandon the economic policies he promised to fulfill. Trump’s proposed economic initiatives expressed during his 2024 presidential campaign have sparked discussions across several industries. For valuation professionals and attorneys who hire experts, these policies are critical to understanding how they could affect the economic landscape and the value of their client’s businesses. The potential impact of Trump’s platform and his ability to effectuate the relative changes must be understood by professionals representing business owners. Tax Policy Changes Corporate Tax Reductions Trump’s plan to reduce the corporate tax rate from 21% to 15% could directly increase the after-tax cash flows of many businesses, a primary driver of business value under the income approach. Capital-intensive industries, such as manufacturing, real estate, and energy, will benefit from a lower tax rate and higher net earnings. Example: A manufacturing company with pre-tax earnings of $5 million would save $300,000 annually under the lower tax rate. Assuming a 10% discount rate, this tax savings could increase the business’s valuation by approximately $3 million. Elimination of Certain […]

In the world of business valuation, the market approach is akin to a treasure hunt, where comparable transactions are the clues leading us to the treasure trove of a company’s worth. However, just as in any good treasure hunt, not all clues are created equal, and sometimes, you might stumble upon a red herring. Take, for instance, the recent sale of a banana duct-taped to a wall for a staggering $6.5 million. Yes, you read that right—a single banana, a piece of duct tape, and a bare wall.  The Market Approach: A Treasure Hunt  The market approach relies on the principle of comparability. It’s the idea that you can estimate the value of a business based on the prices at which similar businesses have recently sold. This method is like using a map dotted with ‘X’ marks—each representing a comparable transaction. The key is to find enough ‘X’ marks to reveal a coherent picture.  The $6.5 Million Banana: An Outlier or a Trend?  So, what can the sale of a banana strapped to a wall tell us about business valuation? Imagine you’re on your treasure hunt, and you find an ‘X’ marked by a banana sale. Does this mean that every future fruit taped to a blank wall will be worth millions of dollars? Not necessarily.  The banana sale, part of Maurizio Cattelan’s artwork titled “Comedian,” became an instant sensation, not for its fruitiness, but for its audacity and the statement it made in the art world. The value was […]

Make no mistake about it: Analyzing and understanding the subject company’s financial statements is paramount when opining on value. However, when you start “peeling the onion,” other factors play an important role.  This is why you can value two similar businesses simultaneously and arrive at different values. Key valuation drivers range from a business’s culture to tangible assets and/or intellectual property. The following provides just a few that should be considered beyond a company’s financial composition. Customers & Competitors Dependency on a few or limited customers will almost always make a business vulnerable.  In other words, a diversified customer base is almost always preferable.  A customer base extending across several geographic regions or market sectors may add even greater value than expected.  This is not just a valuation expert speaking but a sentiment many sophisticated buyers share. Industry An industry by itself can also be a valuation driver – particularly if the sector is expanding rapidly, like AI. Business analysts are often attracted to startups in a young, hot industry – rather than one solely dependent upon organic growth. Keep in mind that you can’t use industry as your sole determinant of value.  Value and the valuation process are acknowledged when a company distinguishes itself from the herd. Internal assets Favorable internal factors may also drive a company’s value. Although these factors may not be as clear as financial performance indicators, one should assess the following attributes when determining value: Management talent: Is the subject company’s management team capable of running […]

Discussing hidden cash and unreported income is always a popular topic for both commercial litigators and family law attorneys. Currently, we are working on several engagements that have developed into full-fledged forensic accounting and fraud investigations. Experts (as well as IRS investigators) look at key areas to prove that cash is missing and to estimate how much income the business owner may not be reporting. Hidden cash can be discovered by taking a closer look at: Bank deposits: These can be used to reconstruct income by analyzing the parties’ bank deposits, canceled checks, and currency transactions, accounting for cash payments made from undeposited currency receipts and non-income cash sources, such as loans, gifts, inheritances, or insurance proceeds. Sources and use of funds: Here, the business owner’s personal sources and uses of cash are analyzed to determine where the owner’s income and other funds came from and how they were eventually used. If the owner is spending more money than they are taking in, the excess may represent unreported income. Net worth: An unsubstantiated increase in a business owner’s net worth can reveal unreported income. Telltale documents such as bank and brokerage statements, real estate records, and loan or credit card applications are often used to define this increase. The net worth gain is calculated, reported income is subtracted, and the amount is further adjusted to reflect any nondeductible expenditures and non-income sources of funds. Percentage markup: Net income is often estimated by applying a benchmark profit percentage to sales or […]

When valuing a closely held, private company, it is important to recognize that the process may be more complex than valuing a publicly traded one. While valuation experts apply discounts at both the entity and shareholder levels, this blog will focus on exploring the various types of shareholder-level discounts and their impact on the valuation of closely held companies. Shareholder-level discounts are applied specifically to the value of an individual shareholder’s interest, accounting for the unique risks and limitations associated with owning a specific ownership interest. These discounts are used in the valuation process to arrive at a more accurate representation of the fair market value of a shareholder’s interest. Discount for Lack of Marketability (DLOM) Selling shares and liquidating funds is not as simple for a private company as for a publicly traded company. In a public company, shareholders can typically sell their shares on a stock exchange and receive the proceeds within a few days. However, this is not the case for closely held companies, where selling shares can be lengthy and complex due to the lack of a readily available market. The discount for lack of marketability is one of the most frequently applied discounts in valuing closely held companies. This discount reflects the difficulty of selling or liquidating ownership interests in a private company compared to a publicly traded one. The DLOM is used to account for the limited liquidity of closely held company shares and the potential difficulty in finding a buyer. Additionally, legal and […]