Business Valuation and Double Dipping
February 19th, 2016 by Rebekah Smith
I spoke at Colorado’s 33rd National CLE Conference in Vail, Colorado on January 9th. My presentation covered advanced topics in business valuation as it relates to family law including “double dipping” (the use of income for both valuation and support) and personal goodwill issues. The key take aways from the presentation are discussed below.
- Counsel should consult with the valuator concerning potential normalizing entries for officer compensation which can have an impact on the financial settlement depending upon:
- The length of marriage
- Likelihood that support will be award
- Ability to construct a settlement (i.e. are there enough assets on the marital balance sheet to “pay out” the value of the business?)
- Some experts are using the market approach and arguing it does not constitute the use of “income.”
- Conceptually there are really three kinds of goodwill though historically the argument has been a black and white issue of just two kinds (entity or personal).
- Entity or enterprise goodwill
- Personal goodwill that is transferable
- Personal goodwill that is not transferable
- The consensus was that the courts are typically trying to get to the personal goodwill that is not transferable (i.e. that the party will not be able to realize value for.)
- Inherent assumption in the valuation of a business of a reasonable period to transfer the business and relationship. It is not like real estate where you “hand over the keys” and walk away. Nor is the standard: what is the value of the business if the owner is “hit by a bus.”
- Transferable personal goodwill is something that a party can realize value for and depending on jurisdiction, could be considered a marital asset.
Let me know what you think about personal goodwill – do you agree that some type of personal goodwill can be transferred?