Business valuation and matrimonial
breakup guide
By Eddie Blaugrund, CPA, CVA, CFE;
and
Elaine Rockwell, CPA, CVA
If a business is part of your
marital assets, a valuation may be required. In
litigation, divorcing couples often hire two
appraisers to value the same business. Depending on
the case, after money is spent on two valuations,
more money may be required to be spent on
depositions of the appraisers, expert reviews of the
other expert report, pre-trials, preparation for
trial and expert testimony.
If an alternative process to
litigation is utilized, other marital assets (cash)
may be saved. It is not uncommon to hire one
valuation expert to perform a valuation of the
business. The challenge is to find a qualified
appraiser.
Why is finding a “qualified” appraiser
so important?
Many certified public accountants
believe that they have the skill set to perform a
business valuation. In fact, many of them do possess
the necessary skills; what they are lacking is the
proper training and experience. A qualified
appraisal should be well supported and adhere to
certain established standards, guidelines and
procedures.
There is currently no definition
for a “qualified appraiser”. However, there are
certain criteria one should look for when hiring a
valuation analyst. First and foremost, a valuation
professional should be accredited. The four
organizations that have business valuation
designations are as follows:
-
American Institute of Certified
Public Accountants’ (AICPA)
Accreditation in Business Valuation (ABV)
-
The National Association of
Certified Valuation Analysts (NACVA)
Certified Valuation Analyst (CVA) or Accredited
Valuation Analyst (AVA)
-
American Society of Appraisers
(ASA)
Accredited Member (AM), Accredited Senior
Appraiser (ASA) and Fellow Accredited Senior
Appraiser (FASA)
-
Institute of Business
Appraisers (IBA)
Accredited by IBA (AIBA, Certified Business
Appraiser (CBA), Master Certified Business
Appraiser (MCBA) and Business Valuator
Accredited for Litigation (BVAL)
Most certifications require either
one or a combination of the following: an exam,
submission of valuation report(s), accreditation of
another organization and an experience requirement.
If the potential appraiser has one or more of these
accreditations, you can have a certain level of
comfort that the appraiser has received adequate
training to perform the engagement. However,
designations alone should not be the sole factor in
determining if an appraiser is “qualified”.
The potential candidate should also
possess other attributes, including experience, the
ability to communicate and teach and ethical
behavior. To find someone with experience, ask
questions and check references. The candidate may be
needed to provide other services including
identifying assets and liabilities, substantiating
income, tracing of funds, addressing tax issues and
assisting with settlement options and structures.
Given the inherent subjectivity in
all valuation jobs, it is preferable to engage a
practitioner who not only possesses the technical
knowledge, but one who also has the practical
experience in valuation engagements to make the
inevitable subjective decisions, but make them in an
independent, and non-biased manner.
If the appraiser is able to explain
the valuation process, such as what documents were
examined and utilized, what assumptions were made,
how the general economy and industry trends were
considered, how rules of thumb and market data were
applied, what discounts were used and why, among
other issues, it is easier for the parties to accept
and understand the process and conclusion.
Ethical behavior deserves equal
attention. Given the subjective nature of valuation,
there are many “appraisers” that will be more than
willing to advocate for their client to reach the
desired value conclusion. For instance, in a
domestic relations setting, there are “appraisers”
who will have different value conclusions depending
on whether they were hired by the business owner or
the non-owner spouse. This should never be the case. |