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Category: Divorce & Matrimony

We have distilled decades of experience at the intersection of law, business and finance into a suite of articles to help our clients make sense of business valuation, forensic accounting, and litigation support. Please visit our site regularly for our latest content.

  The hiring of a joint business valuation expert can often be useful. This strategy assumes that the parties will openly share information and act in good faith. But it may not be realistic in all situations, including contentious divorces and shareholder disputes. Sharing fees and information When using a joint valuation expert, the parties will only be satisfied by the outcome if there’s a mutual perception of fairness. Perceived fairness is enhanced when: • Both parties have a say in the interviewing and selection of the credentialed expert, • The expert and both parties have full access to relevant information, such as tax returns, financial statements, responses to questionnaires and notes from site visits, • The expert’s communications between the parties are shared, and • Both parties contribute to the expert’s costs. The expert should explain upfront that the valuation will be performed in an objective, unbiased manner. If either party suspects that a joint valuation expert is biased, dissatisfaction may ensue, possibly leading to appeals and additional fees. Potential upsides When the conditions are right, using a joint expert can benefit both sides. The benefits extend beyond just saving money and streamlining the valuation process. A joint expert also helps minimize disruptions to business operations from site visits, information requests and management interviews. Additionally, parties that share a valuation expert prove that they can trust each other, improving the chances of effectively working together in the future. For example, buyers and sellers who share an expert to conduct […]


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  Information presented on a company’s financial statements may not always be meaningful from a valuation perspective – even if it follows U.S. 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. In some instances these adjustments may be due to some nefarious actions of the business owner.  In other instances they may just be due to elections in accounting methodology or procedures.uing a business interest. Although these adjustments vary from case to case, many of them 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. The following is a condensed review of these common adjustments. 1. Nonstandard accounting practices A valuation expert may estimate value by using pricing multiples derived from comparable private and public transactions (under the market approach) and discount rates derived from returns on public company stocks (under 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 adjustment, 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 uses the last-in, first-out method (LIFO) […]


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You have just picked up a new case. Your client is a partner in a small or medium sized professional practice.  Maybe it’s a medical practice, an accounting office or even a law firm. You were hired to serve as counsel in a shareholder dispute or even a divorce?  It really doesn’t matter. What does matter is that your clients’ equity interest needs to be valued. After a long afternoon with your client you realize there are a number of issues that may derail a quick resolution to this dispute.  Even now, you may have more questions than answers.  Setting aside those concerns specific to your clients’ practice and profession – there are a few issues you need to consider. What is the appropriate standard of value to be used? What is the appropriate date of the valuation? and How is goodwill to be determine? (if at all) These issues are important to establish your client’s equity interest value, as well as other issues that may be germane.  For instance in a matrimonial setting spousal and child support needs to be determined.  In a shareholder/partner dispute income distributions and loans may need to be analyzed. The following provides a short discussion of same. 1. Standard of value The use of an incorrect standard (of value) can render a valuation report and the related testimony inadmissible. Fair market value and fair value are among the most common standards, but some jurisdictions now call for “intrinsic value.” Fair market value as defined […]


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Many of you may know that I am an Adjunct Professor at Fordham Law School.  This past weeks lecture included a discussion of normalization adjustments to be considered when utilizing the income approach in a business valuation.  As I was presenting my talking points I remembered a lecturer I gave for the Internal Revenue Service many years ago.  During that lecture on tax issues concerning closely-held businesses, I proudly stated that I could show business owners how to avoid (not evade) corporate income taxes by modifying shareholder-employee compensation before year-end.  As you can imagine, my remarks were not warmly greeted by the IRS representatives in the audience. The IRS and closely-held business owners often disagree about the reasonableness of shareholder-employee compensation.  This disagreement is found in both income tax and business valuation instances. For income tax purposes, business owners usually prefer to classify payments as tax-deductible wages because it lowers its federal taxable income and corporate taxes. But, if the IRS believes that an owner’s compensation is excessive, it may claim that payments are disguised dividends, which aren’t tax deductible. The determination and application of reasonable shareholder-employee compensation is also often a contested issue in business valuation.  When shareholder-employee’s compensation is overstated, the available cash flow is often lower and the indicated value (under the income approach) is less.  For this and other reasons, the determination of officer compensation is often a contested adjustment. Whether this conflict is between the taxing authority or an opposing valuation expert, the case law […]


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  Splitting up a marital estate can be a long and complicated process, particularly if one of the assets includes a privately owned business. Fortunately, a valuation analyst can assist attorneys and their clients address these issues – even at the early stages of the matrimonial action. These preliminary issues often include, but may not be limited to: How much is the business actually worth? Do you need to be concerned about the issue of “double dipping” when considering the valuation of a business and the money spouses support obligations? Is the spouse that owns and operates the business deceptive when it comes to reporting his/her income? In this blog post we quickly discuss these three issues.  For those of us that travel down this road often – you know that the totality of the financial concerns in a matrimonial matter can be significant. How much is the business actually worth? There are three methods used to value a business: the asset, market and income approaches. All of these techniques start with the analysis of the company’s financial statements. But discovery shouldn’t stop there, especially for spouses who aren’t involved in day-to-day business operations. Valuation experts should be given equal access to financial records and opportunities to tour the company’s facilities and interview management. Inadequate discovery can cause an expert to miss critical information and possibly lead to an inaccurate conclusion of value. If the business interest was owned prior the marriage, it might be appropriate to include only the […]


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Hidden Taxes in Divorce

Posted in Divorce & Matrimony, on Feb 2015, By: Mark S. Gottlieb

When the CEO of Continental Resources, Harold Hamm, divorced from his wife, Forbes published an article about the possible tax consequences. The settlement ordered Hamm to pay his former wife $995.5 million. Forbes asked the obvious question: with this kind of hefty transaction, the tax man must surely get his share, right? Not quite. According to law, transfers of property between spouses during a divorce are virtually tax free. Good news for the Hamms. However, there are often unseen tax burdens later on. Code § 1041 of the U.S. Internal Revenue Code lays out the rules for the taxation of marital property when it is transferred between spouses. Within the code, the “General Rule” states: “No gain or loss shall be recognized on a transfer of property” between spouses or former spouses.  One can assume that during a matrimonial case, there are no worries over taxes involved in transferring property. In many cases, this is true. But there are some important things to consider before dividing marital assets. Below is an outline of some of the major issues that may cause tax consequences. For a more in-depth discussion of these issues, please follow the link at the bottom of this post to read our whitepaper. Carryover Basis Carryover basis is a method used to determine the tax basis of an asset when it has been transferred from one individual to another. In a divorce, the spouse that receives an asset also takes the carryover basis of the asset. Because the […]


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Perhaps the most expensive divorce in history occurred when Russian billionaire Dmitry Rybolovlev was ordered to pay $4.5 billion to his ex-wife Elena. One of the charges Elena made against her husband was that he had attempted to hide assets in property bought hastily before his divorce. Even in cases where there is less money at stake, an attorney needs help in going through these financial matters. That is where the aid of a forensic accountant comes in. Below are five surprising services a forensic expert can offer during a matrimonial dispute. Preparation of a Net-Worth Statement  A Net-Worth Statement is a detailed account of a person’s assets, liabilities, income, and expenses. The net of the assets and liabilities are often referred to as the net material asset. Assets can include: cash, investments, and property. Liabilities include mortgages and debt. Income can be wages, interest, and business income. And expenses include housing, food, and education. This seems rather straightforward. However, it can often be difficult to find accurate totals or hidden income. However, a forensic accountant has special training to not only investigate and find assets and liabilities, but also the ability to properly calculate the total net worth and determine the parties’ true and constructive income. Back-of-Envelope Analysis of Valuation of Business Because a business may be considered a marital asset, it must be accurately valuated when undergoing a matrimonial dispute. One method that can be used to begin valuating a business is a back-of-envelop analysis. This form of […]


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Estate Tax Strategies for Second Marriages

Posted in Divorce & Matrimony, on Feb 2015, By: Mark S. Gottlieb

Second marriages are not only for Hollywood celebrities like Brad Pitt or Reese Witherspoon. According to the Pew Research Center, 40 percent of marriages today are second marriages. Often second marriages face many complications. Whether it is the terms of a prior divorce, finding a way to harmonize their two career paths, or children from a previous marriage, the situation can become very complex. A necessary thing to consider during a second marriage is estate planning. Usually, in a first marriage, the estate planning is straight forward. However, in a second marriage, especially one with children, this becomes complex. You want to provide for both your new spouse and your children from your first marriage, and you would like to do so with the least amount of tax impact on your estate. The good news is there are ways to reduce the tax effects a second marriage can have on your estate, and by taking some steps, you can secure the most benefits for your family when you pass. Estate Tax According to the Internal Revenue Service, the Estate Tax is “a tax on your right to transfer property at your death […] It consists of an accounting of everything you own or have certain interests in at the date of death.” This can include savings, property, investments, and business interests. It is important to remember that this estimation is not based on what the value of the assets and property were when you acquired them, but rather their current […]


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According to psychologytoday.com, most divorces are filed during the very beginning of the year. Understandably, couples considering divorce try to avoid disrupting family activities during the holidays and, instead, wait to deal with such issues until after the holiday season is over.   After children, financial matters are often the most difficult thing to address during a divorce. Gathering important financial documents at the start of a divorce proceedings can help lower the stress and confusion for counsel and their clients. To help you through the process we have compiled the list below: #1 Certified Copies of Business & Personal Income Tax Returns Most tax preparers utilize computer software to prepare income tax returns; this produces three different versions of the tax return: the government (or filing) copy, the client copy, and the preparer’s copy. The filing copy is the version that includes only those forms and schedules that are required by the taxing authorities.  The client copy includes the filing copy plus other supporting schedules that the software creates. The preparer copy includes all schedules, summaries, calculations, and analytics prepared in conjunction with the tax return.  Generally, one should request copies of the preparer copy, since this version is all inclusive and contains valuable information.  In many instances, you may also request a certified copy from the taxing authority so that you can compare what has been filed to the copy that you have been provided. Certified copies of federal income tax returns can be obtained by submitting Form […]


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Lifestyle Analysis

Posted in Divorce & Matrimony, on Oct 2014, By: Mark S. Gottlieb

Go through financial documents in a divorce is a task that many wish to avoid, though it is a necessary evil.  This exercise is called a Lifestyle Analysis. Years ago it was common for one spouse to seek large monthly support, the other spouse to plea a fraction of that, and the court to “split the pie in half.”  Today the court is equipped to understand how the couple’s lifestyle relates to support determination.  In fact, this process not only identifies the ordinary living expenses, it also identifies unusual, occasional, seasonal, and non-recurring expenses. Today this analysis is required not only by the “non-money” spouses seeking Pendente Lite relief, but often by both parties. The investigation of the couple’s “marital lifestyle” has become a hot topic.  In fact, the court has welcomed this exercise as a valuable tool that has influenced both Pendente Lite support orders and the final financial divorce judgment.  At the very least, the investigation of the couple’s lifestyle keeps the litigants and their counsel on their toes when it comes to submitting net worth statements. The laborious chore of locating and interpreting documents is not attractive. Many are not truly aware of their economic situation, particularly those not in control or responsible for the household finances. Even a slight miscalculation can influence the Court’s judgment. Support in this tedious chore is a welcomed relief by many in the midst of divorce and their counsel.  This effort generally includes: Analyzing personal and business income tax returns, Analyzing […]


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