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Tips On Using A Joint Valuation Expert

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When a private business is at stake during a divorce, it is vital to use a business valuation expert.  The valuation of private business is a complex and subjective task.  These experts are necessary to help the court to place a value on the business.  The expense of dueling experts (one serving the wife and another the husband) lead many to utilize a joint expert.  This joint expert will be a “neutral” and provide one opinion of value.  Careful consideration must be given, though, before agreeing to use a joint valuation expert.

Potential Benefits of Using a Joint Valuation Expert

Greater Efficiency and Lower Overall Cost. 

This is the most common reason for hiring a joint valuation expert instead of dueling experts.   With dueling experts, two people are being paid to perform the same job.  With a joint valuation expert, one person is completing all the work.  It’s far more cost efficient to not duplicate the work.  When using a joint valuation expert, their opinion of value may be given more quickly.  This is because the joint expert has easier access to all the information they need.  This obviously moves the divorce along faster than waiting on two valuation opinions.

Better Access to Information. 

A joint or neutral expert is likely to have easier access to necessary information than one of the dueling experts.  With dueling experts, one will be working with the business owner spouse, who has all of the information.  The business owner has an interest in providing his expert all relevant and requested information, but is likely to sandbag and withhold information from the non-business owner’s expert.  This can result in delays and expenses as the non-business owner spouse may have to request the court to intervene.  If you’re working with a joint valuation expert, the necessary documents and information will be more readily provided.  The business owner spouse has an incentive to comply with the neutral expert.

Business Owner Spouse May be More Willing to Pay the Expert. 

In a situation where only one of the parties has access to a litigation war-chest, the other party may be at a significant disadvantage when it comes to hiring their own expert.  The monied spouse may be unwilling to contribute fees to hire an expert who is competing with his own expert.  Furthermore, even if a court would order the monied spouse to pay for a competing expert, it may be months before a hearing could be held on the issue, delaying the progress of the divorce.  The monied spouse may be willing to foot the entire bill, or a greater portion, of a joint valuation expert.

Agreeing to the Joint Expert’s Valuation Takes Major Issues Off the Table.

Competing business valuations can be widely apart.  There’s a tendency to view valuations as objective products of science.  While there are agreed upon formulas and methods of valuation, within these are highly subjective variables such as what discount rates and capitalization rates to apply.  While an in-depth look at this subjectivity is beyond the scope of this article, suffice it to say that small differences in these variables can result in hundreds of thousands, if not millions of dollars difference in competing valuations.  The wide range in value is one of the most common reasons for parties having a final trial.  If, however, the parties are using a joint valuation expert and agree upon that neutral’s value, it takes this major hurdle off the table.  This leaves the parties able to focus on how to divide the agreed upon value.     

Potential Pitfalls in Using a Joint Expert

The Business Owner Spouse Has More Control. 

Necessarily, the business owner spouse will be the more involved party in the neutral valuation.  They have the information needed by the valuation expert.  The business’ story will largely be told by the business owner spouse.  The business owner spouse will also be present on any site visits.  This means the business owner spouse has a greater opportunity to influence the joint valuation expert than the other spouse.  Depending upon the business owner’s personality, this could be a good or bad thing.  In my experience, the business owner spouse is usually adept at connecting with people.  Building a business necessarily requires a degree of salesmanship that they’re all to happy to display to positively influence an expert.

If You Don’t Agree, The Fees and Delays Double. 

If one spouse doesn’t agree to the joint expert’s conclusion of value, all those cost savings go out the window.  The non-agreeing spouse is forced to get their own expert who must duplicate all, or at least most, of the work that has already been done.  Moreover, since you won’t know whether you agree on the joint expert’s value until it is completed, this means back-to-back valuations must be performed, instead of concurrent competing valuations if dueling experts were initially hired.  This further delays the divorce’s progress.

If You Don’t Agree, The Initial Joint Expert May Hold More Credibility. 

If two parties walk into court, one of whom is continuing to use the initially agreed upon joint valuation expert and the other is using a newly hired expert, the initial expert may seem more credible.  From the judge’s perspective, the first expert was agreed upon by both parties.  It wasn’t until after the valuation was rendered that one party took issue.  The party who took issue risks coming across as recalcitrant.  This issue is alleviated, however, if the joint expert truly made some gross errors that can be clearly articulated.

Tips on Selecting and Working With a Joint Expert

Select the Expert Carefully. 

Ask your attorney whether they are familiar with the expert.  Ask them whether they’ve worked with the expert in the past.  Interview the expert with your attorney.  Put them through the same stringent criteria you used in selecting your attorney.  Ask them about their experience.  Have they ever valued a similar business?  Evaluate their personality.  Will you be able to get along with them?  Will your spouse be able to influence them?

Don’t Get Stuck in the Selection Process. 

Having objections or preferences regarding who to select is one thing.  Ruling out every suggestion your spouse or their attorney make, simply because it’s your spouse or their attorney who made the suggestion, is another.  As with selecting guardian ad litems, therapists, or other jointly determined professionals in the divorce process, there are any number of ways to decide rather than being obstinate for the sake of being obstinate.  You and your spouse could each choose an expert and those two will then pick a third expert who will serve.  You could each propose three and those six names go into a hat.  One spouse could make a list of experts and the other spouse choose which one will be appointed.

Don’t Bind Yourself Ahead of Time to the Expert’s Conclusions. 

In the order appointing the joint expert or in the engagement agreement, you want to be sure that you’re not bound by the expert’s conclusions.  There would hardly be anything more disastrous than being locked into a value that you disagree with and/or that’s been the product of a shoddy valuation.

Ensure the Valuation is Completed Timely. 

Make sure that provisions are included in their the court order or the engagement agreement that provides the valuation opinion will be rendered with enough time to hire your own expert if you disagree.  You don’t want to receive the valuation three weeks before a final trial and be left scrambling to find an expert who’ll perform a rush-job valuation, a fact that’ll surely be brought up on cross-examination.

Stay Engaged and Ensure that You Can Stay Engaged. 

You should be present at every meeting with the valuation expert.  You should be included on nearly every call and every conversation with the expert.  The only exception should be if you and your spouse’s attorneys are speaking with or meeting with the expert.  Regardless, your side should be represented during every interaction.  You must counteract the potential pitfall mentioned above, where the expert may have an onsite meeting with the business owner, where they can have significant time to themselves to exert their influence.  Stay involved in the valuation process.  Work to understand what the expert is undertaking and what issues they may have so that you and your attorney can anticipate and counteract those issues instead of being blindsided by the conclusion of value when it comes in.

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