Valuation or Calculation in Divorce Case?
Many divorce cases include a determination of the value of a business for purposes of equitable distribution between the parties. Whether the business in question is a sole proprietorship, partnership, or corporation, establishing a sound and supportable value is essential.
The first step is to engage a skilled valuation analyst. The second and equally important step is to determine the appropriate level of service to be provided; that is, whether the analysis should be, in technical parlance, a “calculation of value” or a “full valuation.”
One not exclusive rule of thumb is whether the valuation report may ultimately be relied upon by a third-party, such as a Judge or an arbitrator. In such cases, a full valuation is more appropriate. In other settings, such as mediation, a calculation of value may suffice.
A full valuation will provide a greater certainty and reliability, but almost always takes longer and is more costly. Conversely, the time and cost savings for a calculation of value are offset by a more limited scope and lesser degrees of both certainty and reliability.
Not every divorce case warrants a full valuation at the outset, especially if the parties are inclined to find areas of compromise and agreement, rather than resistance and mistrust. Further, it goes without saying that some businesses are simply more complex than others, which may require a full evaluation. The decision on how to proceed is made on a case-by-case basis, depending on a variety of factors, including the parties’ interest in a more efficient closure than the judicial system can provide.