In a nutshell, a collaborative divorce is a method of practicing law in which the attorneys for both parties abandon their adversarial strategy in favor of an approach designed to achieve a negotiated outcome that both parties can live with. Everybody agrees to not commence litigation during the pendency of the proceedings and the attorneys as well as any experts brought into the process are precluded from participating in any litigation that may arise if the collaborative process fails.
Much of the divorce litigation I have been exposed to often required removal of all sharp objects from the conference room. Therefore, the thought of sitting around in a group peacefully dividing up the assets and working out the support arrangements was met with a bit of skepticism by me, to say the least. However, upon further research I came across an insightful article by a BV Update author. Her article, helped clarify the role a business valuation expert such as myself can play, especially when it comes to a family business.
Role of the Valuation Expert
Noreen Dornenberg’s recent BV Update article noted that unlike the family court judge, the divorcing couple has not heard testimony from dozens of business valuation experts over the years. Yet, it is these two people who will decide to whom, at what valuation, and under what conditions the family’s closely held business will be allocated in the equitable division of marital assets.
She went on to state that the business valuation expert’s role in the collaborative process may significantly increase with the spouse not involved in the daily operations of the business. It is up to the business valuation expert to help him or her understand what drives value in the family business and the impact that other decisions in the divorce process may have on the value of that business. In addition, both spouses should be made aware of other valuation issues that often come out in court such as:
- Whether it is the assets of the business or the business itself that should be valued, especially for Schedule C businesses and small S-Corporations.
- In marriages of recent origin, how much of the value of the business is rightfully contained in the marital estate.
- The impact the divorce will have on the ability of the business to secure financing.
- Impact on the business from the loss of (often unpaid) key personnel.
Suggestions for Improving Appraisal Practice in Collaborative Divorce
Dornenburg suggested the following:
- The appraisal report may be more effective if written in a consultative manner, with particular concern for its clarity for the passively owning spouse, rather than written in a fashion to defend the appraiser’s conclusions against an opposing expert.
- Have the spouse who is actively managing the business critique the report to provide the reality-check of the appraiser’s work usually provided by the opposing expert.
- Report a range rather than a precise dollar value for the family business in order to accommodate the fact that the collaborative process may extend over some time.
- Add a competency in divorce financial planning in addition to valuing closely held business interests.
I am considering adding training in collaborative divorce techniques to my repertoire. I am told that such a competency is necessary to qualify as the neutral financial advisor for collaborative divorces. I would like to hear from my readers about their experiences in this new and expanding area.