As detailed in our blog on Income Analyses, there are two primary financial aspects in a marital separation or dissolution of a common-law relationship. These two aspects relate to the equalization of property or the splitting of the net assets owned by the separating couple and the potential obligation that exists for either child or spousal support. In most separations, these financial issues are relatively straightforward but that is not always the case. In particular, when businesses are involved these two issues can become complex and thus require the expertise of a CBV.
It is important to ensure all business activities engaged in by the separating individuals are considered. A business owner can include individuals operating “side-hustles” where they are collecting money in exchange for goods or services outside of their full-time occupation. A business may be a public or private entity, may have both individuals listed as owners or shareholders, or one individual listed as the owner while the other may or may not have been employed by the business. There may be multiple businesses and companies increasing the complexity of extracting the true value and determination of an individual’s income. The complexity of these situations often results in differing opinions about asset values and income.
As CBVs, we generally provide reports that fall within three of the six report types defined within the Practice Standards of the CBV Institute in order to assist with these opinions around income and assets. These three report types are Valuation Reports, Expert Reports and Limited Critique Reports. In all cases, a report generally speaking can take approximately 4 to 8 weeks, depending on the number of businesses owned by the individual(s), the number of years to be analyzed, the magnitude and pervasiveness of personal expenses expensed through the business, and the availability of the information required to complete the analysis.
Within the Valuation Report category, as the name suggests, these reports provide conclusions on the “value” of a particular security or business interest. In family law matters, most of our valuation reports relate to the valuation of a business or corporation but we are also asked to prepare valuation reports related to employee-based stock holdings that are granted to individuals by their employers (i.e. stock options, restricted stock units, etc.) With Valuation Reports, it is also important to note that there are also three different levels of reports that can be prepared depending on the circumstances, nature of the reliance on the report and the size of the business or asset being valued. A breakdown of these different reports has been summarized in the table below:
|Valuation Report Type||Description||Applications|
|Comprehensive||“Contains a conclusion as to the value of shares, assets or an interest in a business that is based on a comprehensive review and analysis of the business, its industry and all other relevant factors, adequately corroborated and generally set out in a detailed Valuation Report.”|
|Estimate||“Contains a conclusion as to the value of shares, assets or an interest in a business that is based on limited review, analysis and corroboration of relevant information, and generally set out in a less detailed Valuation Report.”|
|Calculation||“Contains a conclusion as to the value of shares, assets or an interest in a business that is based on minimal review and analysis and little or no corroboration of relevant information, and generally set out in a brief Valuation Report. This type of report is not as robust as an estimate or comprehensive valuation report sometimes referred to as a “ballpark” assessment of value.”|
Source: CBV Institute
In practice, Calculation Valuation Reports may be considered in situations where both parties have access to all relevant information, joint retainer, collaborative or mediation engagements, or to aid in settlement negotiations. Estimate Valuation Reports are often considered for matters that are going to court, where both parties do not have access to all relevant information or more complex situations. Comprehensive Valuation Reports are often considered only for more extreme situations requiring in depth analysis, including forensic audits, due to their high cost.
With respect to Expert Reports, an Expert Report is defined within the Practice Standards of the CBV Institute as “any written communication other than a Valuation Report, containing a conclusion as to the quantum of financial gain/loss, or any conclusion of a financial nature in the context of litigation or a dispute, prepared by an Expert acting independently.” Income analyses are the most common “expert report” that we prepare in a family law context but other reports such a reporting on contingent disposition costs (income taxes and other notional costs incurred to realize on the value of a particular asset or business) represents another example.
The last primary report in a family law setting is a Limited Critique Report. A Limited Critique Report is defined in the Practice Standards of the CBV Institute as “any written communication containing comments on a report that was prepared by a Member or non-Member containing a conclusion as to the value of shares, assets or an interest in a business, or a conclusion as to the quantum of financial gain/loss, or any conclusion of a financial nature in the context of litigation or a dispute (the “Original Report”), prepared by a Valuator (the “Reviewer”) that does not itself contain a valuation conclusion or conclusion as to the quantum of financial gain/loss, or any conclusion of a financial nature in the context of litigation or dispute.” This type of report does have narrow applications given the restriction that it can not contain a “conclusion”. They are generally not used directly in litigation as courts will be looking to the CBV for their opinion. However, in some instances, they may be useful to assist counsel in cross examination or settlement negotiations.
At the end of the day, there are several ways that CBV’s can assist in a family law matters in order to help simplify what is a complex situation, especially where businesses are involved. Our team of four CBV’s have significant family law experience. If you are in the unfortunate circumstance of dealing with family law valuation or income issues then feel free to reach out to one of us today.