Adversarial. Hostile. Inequitable. These are words commonly associated with traditional divorce proceedings. Typically, these proceedings include pre-trial negotiations and settlement procedures which are transacted under the shadow of the court, subject to the authority of the judge, who has the power to reject or amend settlements in cases where they may appear inequitable in the eyes of the court. The pre-trial process is typically adversarial in nature and business valuation experts are not usually involved (and neither are the divorcing parties themselves) beyond simply presenting their estimate of the value of any privately-held business.
Enter collaborative law.
Collaborative law is a form of alternative dispute resolution in which there is no arbitrator, judge, or jury – only the litigants, their lawyers, and selected “neutrals” that are brought in to aid in the dispute resolution process. A subset of collaborative law is collaborative divorce, an increasingly popular alternative to suing for divorce in family court. Collaborative law is closer in nature to mediation, in that it requires that the two parties to the divorce and their respective lawyers come together as problem-solvers rather than adversaries. Thus, the parties themselves are the true triers of fact and a business valuation expert can fill the role of an advisor to the divorcing parties, both individually and collectively.
The following list illustrates the primary roles and responsibilities of an appraiser engaged in collaborative divorce:
- Expert is contracted as a neutral to both parties for the duration of the process
- Expert signs an agreement to work as part of a team in resolving the divorce-related issues
- Strict confidentiality is maintained – nothing made known in collaborative process may be carried over into a subsequent divorce action
- In order to maintain neutrality, the expert must not have a continuing professional relationship with either party
- Appraiser’s report serves as a fact document, much like monthly brokerage reports and bank account balances
- Ensure both parties understand what is driving the value of the business being valued and the impact that other decisions in the divorce process may have on the value of that business
Other considerations to be addressed in business valuations for divorce:
- Future stability of cash flows from the business upon which child support, income, and alimony will be based
- Double dipping – counting the cash that is generated from the business for alimony purposes in addition of using the same business income to justify a high value for the business in division of marital assets
- Whether assets of the business or the business itself should be valued
- How succession or estate planning is affected
- How much of the value is rightfully contained in the marital estate (pre-marital vs. marital)
- How the divorce affects the value of the business (e.g. loss of employee)
Have questions about whether a collaborative divorce is the right option for you? Contact our divorce business valuation professionals at 440-449-6800.