Divorce - FAQ Archives

Neutral Business Valuation Experts in Adversarial Divorce

When the marital estate of a divorcing couple includes a family owned business, division of the business presents complex problems, including how to allocate the business property between the parties. However, before the court may address allocation, it must assign a value to the business. Traditionally, a business's value is determined through the adversarial process. In the adversarial process, the court assigns a value after both parties present evidence as to the business's value and cross-examine each others' business valuation expert.

In some cases, the traditional adversarial approach may fail to provide the court with the information necessary to assign a fair and accurate valuation. In such cases, a neutral business valuation expert may be appropriate.

When is a neutral business appraiser appropriate?

Provided it makes economic sense (that is, the cost of retaining an appraiser is not excessive relative to the estimated value of the business), there are many situations in which a neutral business appraiser may be appropriate, including situations in which there is a large disparity in the valuations presented by each party, a proposed valuation is based upon unreliable evidence, a party is uncooperative, only one party presents evidence, or one party is unable to hire an appraiser because of financial hardship. Additionally, a neutral business appraiser is often appropriate when the parties jointly agreed to seek the appointment of such an appraiser.

How is a neutral business appraiser appointed in a divorce proceeding?

Whether a neutral business appraiser may be appointed, and the circumstances under which such an appraiser may be appointed, vary by jurisdiction. In cases involving unusually difficult, sophisticated, or complex issues, a court may have the inherent power to appoint a neutral expert to assist it in evaluating the evidence presented by the parties.

In some jurisdictions, a court's power to appoint a neutral business appraiser may be provided by law. Statutory authority may prescribe the appointment of a neutral expert or appraiser for the purpose of valuing assets (see e.g., California Evidence Code § 730), in equitable distribution proceedings (see e.g., New York Court Rule § 202.18), or for other reasons.

What are the benefits of a neutral business appraiser?

A neutral business appraiser may:

  • Aid in the court's understanding. Business valuation is technical in nature and typically involves complicated mathematical or scientific concepts in which the court may lack the necessary experience or skill to select between opposing valuations. A neutral business valuation expert can educate the court regarding the available methods of valuation, the appropriate valuation methodology for the type of business at issue, and the application of a particular methodology to the facts.
  • Ensure accurate and reliable information. In adversarial divorce proceedings, a neutral business appraiser eliminates the concern that an appraiser's valuation is biased in favor of the party who retained the appraiser. A neutral business appraiser also addresses concerns regarding the subjective nature of property valuation.
  • Prevent breakdowns in the adversarial process. A neutral business appraiser avoids cases in which only one party presents unreliable evidence or cases in which both parties present evidence but reach substantially different valuations. Additionally, a neutral business appraiser would prevent harm to a party who lacks the resources to retain an appraiser to present evidence to counter other party's evidence and aid in cross-examination of the opposing party's appraiser.
  • Save time. Because an impartial and reliable valuation from a neutral business appraiser typically increases the likelihood that the parties and the court will accept the valuation, disputes and litigation arising from largely disparate, biased, or unreliable valuations are avoided. Additionally, a neutral business appraiser can save time by streamlining the discovery process (only one appraiser will be requesting documents) and ensuring that the court's time will not be wasted by the presentation of unreliable evidence.

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