A phased approach to business valuation in divorce cases can offer parties and their counsel strategic advantages and potential cost savings, as well.
With a phased approach, divorce litigants and their counsel may determine how deep the business valuation process should be depending upon the complexity of a company or case. In some instances, for example, a full business valuation, complete with expert testimony, may be required. In others, a less extensive process may be more appropriate. In general, the deeper the business valuation process is, the more time and money required.
Three Distinct Business Valuation Phases
Three distinct phases can be applied to business valuation in divorce cases. Each phase can be identified by the role the expert hired to conduct the valuation plays. The phases include:
- Undisclosed consulting business valuation (or, “BV”) expert.
- Limited disclosure business valuation expert.
- Disclosed testifying business valuation expert.
In each of these phases, the expert has a specific set of responsibilities and considerations. In essence, the level of disclosure of the expert’s role reflects the increasing complexity of a valuation.
Phase One: Undisclosed BV Expert
A phase one business valuation in a divorce case involves an undisclosed consulting role. In this scenario, a business valuation expert assists legal counsel in understanding the nuances and technicalities of a valuation. This phase is crucial for developing informed litigation strategies and identifying potential ranges of business values. In phase one, a business valuation expert helps attorneys and parties weigh the cost-benefit of litigating the business value and can be particularly useful in certain scenarios—such as when the value of the business might not support the cost of a full appraisal.
Phase Two: Limited Disclosure BV Expert
A phase two business valuation involves the limited disclosure of the expert’s role. This phase allows counsel and litigants to take a strategic and targeted approach to discovery and due diligence. This phase is well-suited for settlement or mediation efforts, as it provides a starting point for negotiations based on initial calculations and limited disclosure of BV work product. The additional due diligence in this second phase allows the business valuation expert to address, in a focused and cost-effective way, discovery-resistant opposing parties or allegations of intentional depression of profits.
Phase Three: Disclosed BV Expert
The third phase business valuation approach involves the full disclosure of a testifying BV expert’s role. All discovery and due diligence are completed, and the expert provides an unrestricted opinion of value and a detailed valuation report. This phase is essential for providing a fully disclosed and defensible opinion of value, particularly in cases where expert testimony will be required.
Conclusion: Greater Flexibility for Counsel and Clients
Where business valuations in divorce cases are concerned, one size does not always fit all. Family law attorneys and their clients may be able to save significant time and money depending on the prospects for settlement, the depth of valuation information required, and the way valuation data will be used. A phased approach allows all parties involved in a divorce to balance litigation strategy and costs when engaging an expert to conduct a valuation.
However, truncating the process can be risky if the valuation is not conducted by a highly qualified and experienced BV expert. And to gain the full benefits of a phased business valuation approach, the expert should be engaged and commence work as early as possible.
Forensic Strategic Solutions has substantial experience conducting business valuations in divorce cases and is well prepared to advise and implement a phased approach. To learn more about our work, contact us for a consultation, or visit our practice area page on Litigated Business Valuation Services.