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Valuing a Business In Divorce: Using Mediation to Resolve Business Value Issues

April 5, 2018

 by Kathryn S. Lazar,  Attorney-Mediator

CONTROLLING COST AND CONTENTION AROUND EXPERT APPRAISALS

When your divorce involves a business owned by you or your spouse, or you and your spouse, the value of the business will most likely figure in the divorce resolution. If you and your spouse disagree on the value of the business (which is often the case when one of you is buying the other out or when one spouse is to be paid a portion of the business’s value), the disputed value may be resolved by engaging a third party expert to calculate what the business is worth. This is called appraisal. Appraisal methods are several; these alternatives are themselves the subjects of many articles (Google “different ways to value a business”). This post focuses not on appraisal methodologies, but on ways divorcing parties can commission a fair appraisal in a way that is economical.

 

If you care about containing the cost and expediting resolution of your case, a scenario to be avoided is “expert opinion versus expert opinion,” where each of the parties in a litigated divorce hires an appraiser, the resulting appraisals are materially discrepant, and each appraiser must testify to explain his/her calculation. This is often called “The War of the Experts”, which can be avoided by hiring one appraiser who meets with both spouses to understand the perspective of each. Critical in this approach is to oblige the appraiser to be neutral, not favoring either party. This reduces conflict, stress and expense. Divorce attorneys generally have had experience with appraisers in our community, and your lawyer may be able to work with your spouse’s attorney to select someone both of them believe will be neutral and competent.

 

Another way divorcing parties can control expense is by choosing the type of report they want from the appraiser. Appraisers are not auditors; if you are looking for a forensic analysis of Oral reports typically cost less than written reports, which can be useful when trying to settle a case out of court. If you are unable to agree upon a value, however, and need a court to get involved, oral reports are not admissible.

 

Before starting work, the neutral appraiser should be available to sit down with the parties and their mediator or their lawyers to discuss any concerns they may have. Such concerns might include the valuation method to be used — one method might be more appropriate than another for a particular business — and any special considerations that might affect value.

 

The above approach can be implemented in a litigated divorce but is more common in a collaborative or mediated divorce, where the parties are often motivated to save money and aggravation while obtaining the necessary information. What is more, appraisers generally charge less for their work in a collaborative or mediated divorce because they know that they will not be called upon to testify in court, which is very time consuming.

 

In collaborative and mediator cases it is not uncommon for the appraiser to meet with the parties and their attorneys or the parties and their mediator after the valuation has been completed to review their procedures and conclusions, and answer any lingering concerns either party or attorney might have about the conclusion.

 

One of the advantages to consider in a small business situation is that both collaboration and mediation provide a private setting in which these issues can be worked out. Many small business owners and their spouses would prefer a private setting so that every issue can be openly aired, addressed and resolved.

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