Business Valuation

Business Valuation

Business valuations typically require the expert opinion of Certified Public Accountants and Economist. Valuing a business for sale or other business reasons can be very different than valuing it in a litigated family law case.

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If not experienced in valuation issues within the context of family law litigation some may make critical mistakes. All Valuations rely on models. Some of these models are not appropriate.

For instance the use of the market value method of valuation is not necessarily appropriate in the context of a closely held business. Two cases, In Re Marriage of Lotz (1981) 120 Cal.App.3d 379, 174 Cal. Rptr. 618, and In Re Marriage of Hewitson (1983) 142 CaI.App.3d 874, 191 CaI.Rptr. 392, have held that relying solely on the price-earnings ratio of publicly-traded corporations to value closely-held corporations is error. These cases have reasoned that one cannot compare the stock of a business owned by a single shareholder, responsible to no one, that cannot be easily sold, to a company that is publicly-held and easily sold. Furthermore, an owner of a private company may eliminate most of the corporate profits by paying himself a large salary; a public company will not arbitrarily eliminate profits by paying out large salaries.

Discounted Future Earnings equates the value of a company to the present discounted value of the company’s expected future earnings. This approach, while acceptable as a valuation method for certain businesses, should not be used in valuing a professional practice. As the court in Marriage of Fortier (1973) 34 CaI.App.3d 384, 109 CaI.Rptr. 915, held: “Since the philosophy of the community property system is that a community interest can be acquired only during the time of the marriage, it would then be inconsistent with that philosophy to assign to any community interest the value of post-marital efforts of either spouse.” In Re Marriage of King (1983) 150 Cal.App.3d 304, 197 Cal. Rptr. 716, similarly rejected a valuation where the appraisal was “replete with references to post-separation efforts of husband.”

We work with only the most and experienced Divorce Financial Experts who are known to the courts. Most of these experts teach the classes our best judges attend to learn about the latest nuance of family law financial issues. When we present an offer to settle to our opposing party they will appreciate that it’s credible, based on verifiable, admissible evidence and likely to be given great weight by the judicial officer hearing the case.

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