Obtaining adequate disclosure in a family law matter has become increasingly difficult over the last couple of years. Whether it’s a lack of cooperation from the business-owning spouse (who is on the opposite side of the file) or clients not wanting to provide the level of detail that is required, not getting the disclosure delays the production of our reports and makes it a more expensive process.
The primary drivers required for the disclosure are:
- What type of report are we preparing?
The items we require for Business Valuation Reports and Income for Support Reports are similar, however, there are definite differences. These differences impact what we ask for. An obvious example is that we need personal tax returns for Income for Support Reports, but they are rarely needed for most Business Valuation Reports. In addition, Business Valuation Reports generally require a greater focus on the balance sheet and financial position of a business, along with a better understanding of the background and operations. - What level of Business Valuation Report is being prepared?
There are three levels of Business Valuation reports:-
- Calculation Valuation Report (low level of detail required)
- Estimate Valuation Report (mid-level of retail required)
- Comprehensive Valuation Report (highest level of detail required)
The type of report being prepared drives the level of background information required on the business operations. It also drives the amount of independent corroboration required with supporting documentation.
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- Does the nature of the business affect the expected valuation approach for Business Valuation Reports?
Yes. For example, with real estate or investment holding companies or those companies that are underperforming, we are likely to utilize a net adjusted asset-based approach for our valuation. This approach is more concerned with underlying asset values and doesn’t need to focus on management compensation, personal expenses, etc. The scope of review for an asset-based approach is generally less than for a business where we believe there to be goodwill or intangible value. - Do overall circumstances affect the information needed for the report?
Where we are provided information on potential issues with the reported financial information (i.e. lifestyle doesn’t match reported income levels, unreported income, excessive personal expenses), we will require more in-depth information. Similarly, when we are engaged by the non-business-owning spouse, we will include more detailed questions in our original request for information in an attempt to avoid further requests for information at a later stage.
What happens when we don’t receive the required information for the report?
When all of the information requested is not disclosed, it I difficult to issue a full expert report. When this happens, we have 4 options, none of which are ideal.
- Prepare a lower-level report:
Because there are 3 levels of Business Valuation Reports, we would consider issuing a lower-level report where there is a lack of information disclosed. This is not possible when issuing an Income for Support Report as it is classified as an Expert Report under the Practice Standards of the Canadian Institute of Chartered Business Valuators and there are no different levels of Expert Reports. - Prepare the report with scope limitations:
Where the information disclosed permits, the report would be prepared to the best of our abilities incorporating a section that highlights the key information requested but not provided. The report is then qualified and, where possible, it will highlight the potential impact the missing information might have had on the conclusions. - Make assumptions and disclose the nature of the assumptions:
Where the missing information is not significant, or we feel that we have the ability to make some assumptions to deal with what has not been provided, we will simply make the necessary assumptions and highlight those assumptions throughout the report. - Not prepare a report:
In extreme circumstances, where the significance of the information not provided is high, to the only option is to not prepare a report.
These insights into financial disclosure are offered from the perspective of a CBV. If there are any questions or you would like some additional information, please feel free to reach out.
