Litigate the Value of a Business or Settle? An Early Case Assessment Gives a Divorcing Couple—and Their Company—a Rational Outcome
Situation:
When a divorce involves a business owner, should the parties go through the risk and expense of litigation over the value of a company? An early case assessment can be a critical tool in helping attorneys and clients make this decision.
Consider a matter we handled involving a trucking company owned by a divorcing man and his father. The company had been the husband’s sole source of income, and his wife estimated she was owed at least $250,000 in the divorce. This, she believed, was the value of her portion of the husband’s 50% ownership interest in the company.
The husband, however, argued that the company owed substantial sums on tractors and trailers, and as a result of these debts, the value of the company was minimal. After an unsuccessful mediation, the judge in the case ordered the parties to hire a business appraiser.
Strategy:
FSS’s litigated business valuation team was engaged jointly by the parties pursuant to the judge’s order. Our first step was to conduct an early case assessment. An early case assessment is a high-level analysis of the value of a business conducted at the earliest possible opportunity by qualified business valuation experts. Such an analysis can be invaluable in helping parties determine whether they should litigate a valuation or seek a settlement.
In the case of the trucking company, we gathered and analyzed financial documents and quickly determined that the husband’s assertions were correct: The company did not have much value. In addition to examining the company’s finances, we also performed a site visit, and interviewed company management, as well as the husband and wife—an effort which helped instill confidence in the wife and her counsel that we were not overlooking crucial information.
Results:
We summarized the findings of our early case assessment in a memo to the presiding judge. Rather than incur fees that we considered unnecessary for the clients, we recommended that our work on the valuation be halted, as our estimated additional fees to do a complete valuation would consume too much of the value of the company.
We also presented schedules and calculations to both attorneys and discussed these calculations with them. Both sides agreed with our findings and were able to come to a settlement and avoid litigating the value of the company.
While the early case assessment and our findings reduced our potential fees, it was the financially rational approach for the parties. FSS was able to help a small family business survive an adversarial issue, and, by saving legal and professional fees they could ill afford, augment the net assets distributed to each divorcing party.
