Some simple questions you can ask your client are in reference to profitability, is the company making money or profitable? Has the revenue stayed the same as the past couple years or is it significantly different, either up or down? Does the owner receive a salary from the company or possibly distributions? You can also ask whether the company is a start-up or if there are any trademarks, patents or proprietary systems.
Family law attorneys often ask us if they really need a valuation and when should they contact and hire an expert.
Here are some things to consider. What do you know about the business? Understanding whether you need a valuation has to do with several factors, some of them are about the business and some of the factors are about the strategy for testimony regarding valuation and maintenance issues. Some simple questions you can ask your client are in reference to profitability, is the company making money or profitable? Has the revenue stayed the same as the past couple years or is it significantly different, either up or down? Does the owner receive a salary from the company or possibly distributions? You can also ask whether the company is a start-up or if there are any trademarks, patents or proprietary systems. See if you can get 3-5 years of financial information such as balance sheets and income statements or, at a minimum, the company’s tax returns. This will give you a better idea of the operational history and you can share it with an expert to give them an opportunity to understand the complexity and scope of the valuation.
Why should you care about these questions? Typically these are the areas of contention in a divorce. The parties will disagree on what the future of the company means to the value, more importantly one party may think the other spouse is destroying the business prior to the divorce – in order to lower the value. There are cases where the person operating the business will funnel money out of the business or invest heavily in new equipment, which may be unnecessary to the operations. In other cases the owner will pay themselves a hefty salary or, conversely, a very low salary given the responsibilities, either way the compensation may need to be adjusted. When you adjust salary you need to consider the issues surrounding “double dipping”, which is simply using one number for compensation when determining the value of the business and using a different number for the calculation of maintenance.
What does the valuation have to do with strategy? Strategically you may want a valuation if the other party has already hired an expert, or if there is any concern about whether a business asset is marital or separate, or if there are several companies involved and the business structure is complicated. Typically when the parties get divorced both sides start to have completely different views of the value of the company, which makes it necessary to hire an expert to determine a supportable value of the company. Your expert is there to provide a defendable valuation opinion, not the highest or lowest number which benefits the client.
Normally you can contact a valuation expert, discuss some of the specifics of the company or the situation and then determine what type of valuation is necessary given the facts and circumstances. It's not always easy to determine whether you need a valuation but you can also hire experts to just review the documents. They will take a look at the specific issues you've identified and see if there's a better way to go about getting what you need. Maybe you think there is no value to the business? Sometimes there may be little value, but the cash flow is supporting the lifestyle of one individual, which could affect maintenance. It might just be an exercise to prove some value and then support a position of limited/no maintenance. Experts can provide a better picture of the valuation, but can also serve as a consultant and help you develop the underlying theory for the negotiations or settlement strategy.
Try to fit the budget with the work needed. Valuations can be developed in stages, so you could hire an expert to (1) review the documents and give you an indication of whether the company is worth valuing, (2) if there is value, then proceed to give you an idea of the value range in order to settle the case or prepare for negotiations and (3) finally, if you get close to trial or deposition, the expert can prepare final conclusions, schedules and/or a report, as well as prepare for testimony.
Let the valuation expert help you define the project. Be clear on what you need and then let them tell you what costs may be incurred. Scoping the project and proceeding in stages can save time and dollars as well as provide you and your client with a defendable position in court.
Melissa Gragg 314-541-8163
Many attorneys and business owners want to know about alimony guidelines or spousal support issues regarding a divorce in Missouri: What happens after you file divorce papers? Is there a way to determine alimony with a spousal support calculator online?
If you own a business and are getting divorced you may consider your current CPA to value your business. Here are some questions to ask!
Business owners are always asking us questions about valuation issues in the context of divorce. Many attorneys and business owners want to know about secondary valuation services and what are maintenance calculations?
In the divorce litigation world, attorneys will talk about maintenance, which is the same as alimony or spousal financial support. It is the payment from one spouse to another for household expenses.
There are times when one spouse is the primary wage earner and the other has taken care of the house and kids. When a legal separation is requested or divorce papers are filed there may be a need for alimony to temporarily support the non-wage earning spouse until the lawyers work out a deal or the parties go to court. This amount is usually part of a bigger negotiation regarding the separation of assets, including who get the house, cars, investment accounts as well as child support.
Many times an attorney will hire a divorce valuation expert to calculate the after tax amounts that each spouse will have -- basically what is the money that is left over after taxes -- given different situations of alimony and child support.
Sometimes the working spouse wants to pay off the amount in one payment, so there is a present value calculation to determine the value of all the payments if they were paid in one lump-sum today.
If you would like to discuss your situation with a valuation expert, give us a call at 314-541-8163.
Many people have valuation questions when filing for divorce. One of the main questions is whether or not they should use their current CPA to provide valuation services or expert witness testimony in family law court.
Many people going through divorce assume that since their accountant or CPA has worked with them for many years then it would make sense to use them to prove the value of the business, provide maintenance calculations, or testify in court.
The reality is that alimony, child support and company valuation issues are complicated matters. Business valuations are usually handled by people who have many years of experience and a business valuation credential such as CVA, ABV or ASA which are just some of the available certifications.
So the first question you need to ask your CPA, accountant or bookkeeper is whether they've completed any business valuations in the past. Another good question is whether they have received any formal training regarding business valuation methods.
Another good question to ask is if they have some experience in providing valuation services to other companies. The next question could be whether they have ever testified in deposition or trial for a divorce proceeding.
It is one thing to be able to give someone a rough estimate of value and it is quite another to truly understanding business valuation methods and to be able to complete a full valuation of a company. It is a whole different matter to able to testify regarding the valuation report or calculations.
There are several areas of valuation which are important when testifying in divorce court. Most professional valuation experts are well-versed in applicable court cases, the difference between personal and enterprise or business goodwill.
For divorce it is importance that the expert understands the rules for each state within which they work. Typically this requires some experience or prior testimony in the family law area.
Many attorneys and business owners want to know about valuation issues regarding divorce in Missouri?
What happens when you own a company and you file divorce papers? Well the first step is to contact an attorney who you trust to handle your case.
Then you need to start gathering data, including prior tax returns for at least the past 5 years, financial statements, bank records, buy-sell agreements and operating agreements just to name a few. You will then start discussing the value of the company with your spouse, preferably through your attorney. If you find out that your view of the value is different than your spouse's view of the value -- then you may need a business valuation expert.
I typically see valuations for divorce have 3 different levels -- the first is calculation phase. This is where the expert reviews all info and determines the value of the business -- which is not a full valuation per se. Just calculations and some financial spreadsheets.
Then you or your divorce attorney may want to initiate discussions again with your spouse with the valuation expert's analysis.
Don't be concerned if your spouse also wants to hire an expert, that is normal. Sometime the attorneys and parties want the experts to discuss the valuations and see if they can come together on one number -- this doesn't happen often because divorces are very emotional.
Then the 2nd level is the report phase. if a settlement cannot be reached and the parties get closer to trial, the experts will then produce reports regarding the calculations. This is to outline the valuation methods used by the expert. These reports are ususally submitted to the court and to both attorneys at the same time -- and prior to the court date.
The final phase is expert testimony. After the reports are issued, the attorneys may want to questions the experts in deposition. This is treated like testimony in divorce court. This happens relatively close to the trial date. And then the experts will testify in trial.
One thing to keep in mind -- the experts are truly servants of the court and judge and therefore you should work to find an expert that tells you the truth rather than what you want to hear. If your divorce goes to trial you will want an expert who can support their numbers with data and not just opinions.