Special Edition 2008
Focus on Family LawEditor for This Issue: James J. O’Sullivan
Intangible Asset Valuation Insights
Valuation of Goodwill
Within the Family Law Context
Robert F. Reilly
Valuation analysts are often called on to value goodwill as part of a family law controversy. The valuation analyst is asked to value institutional (or business) goodwill when the marital estate owns a family-owned business or professional practice. The valuation analyst is asked to value personal (or celebrity) goodwill when one of the marital partners is a licensed professional, professional athlete, or professional entertainer. There are generally accepted approaches, methods, and procedures related to the valuation of goodwill. First, this discussion summarizes these generally accepted goodwill valuation approaches and methods. Second, this discussion presents a simplified illustrative example of one generally accepted goodwill valuation method.
The Identification of
Intellectual Property for Family Law Purposes
Ashley L. Reilly
Valuation analysts are often called on to value intellectual property for family law controversy purposes. This valuation need arises when the marital estate either directly or indirectly owns an intellectual property ownership interest. For family law purposes (and for other valuation purposes), intellectual property includes: trademarks, patents, copyrights, and trade secrets. There are generally accepted approaches, methods, and procedures related to the valuation of intellectual property. However, all of these valuation analyses begin with (1) the identification of the subject intellectual property and (2) the identification of the subject bundle of intellectual property ownership rights. This discussion summarizes the factors that the valuation analyst (and the family law attorney) should consider in the process of identifying the subject marital estate intellectual property.
The Valuation of
Intellectual Property for Family Law Purposes
Alan A. Schachter
A marital estate may own an intellectual property directly or indirectly (through a family-owned or closely held business or professional practice). In such instances, the value of the intellectual property can be the subject of considerable controversy between the marital parties. Accordingly, valuation analysts who practice in the family law discipline—and family law legal counsel—should be familiar with the generally accepted valuation approaches, methods, and procedures related to marital estate intellectual property.
Personal Goodwill and
Business Goodwill—Are They Marital Assets?
Alexis A. Dawicki and Richa Prakash
The distinction between “personal” goodwill and “business” goodwill is often a disputed issue in marital dissolution cases. Depending on the prevailing state statute, this distinction may play an important role in determining which assets are marital property and which assets are separate property. Family law attorneys should keep abreast of the prevailing law in their respective jurisdiction. And, if applicable, family law attorneys should work with a valuation analyst to ensure that the value of the total enterprise goodwill is properly allocated between professional goodwill and business goodwill.
Family Law Insights
An Introduction to ESOPs for Matrimonial Attorneys
Katherine Gilbert and Hope Taylor
Each state has its own procedure regarding the division and distribution of the marital estate in a marital dissolution matter. This statement is particularly true where pensions and other employee benefits are concerned. Retirement benefits include pension plans, annuities, 401Ks, IRAs, ESOPs, and any other retirement savings scheme that enjoys favored income tax treatment. Of the various types of retirement benefits, ESOPs may be the least common and the least understood by family law legal counsel. This discussion introduces employee stock ownership plans (ESOPs). In particular, this discussion summarizes the nature of ESOP shares, how ESOPs are created, the benefits of ESOPs, regulations that govern ESOP shares, and other relevant issues when ESOP shares are included in the marital estate.
A Roadmap to Cross-Examining a Valuation Expert in Family Law Litigation
Alan A. Schachter and James J. O’Sullivan
The effective cross-examination of a valuation expert requires an understanding of the entire valuation process, from the qualifications of the valuation analyst through the selection of the valuation approaches and methods. The family law attorney should approach the opposing expert’s valuation analysis and report as a process in which each step (1) is important to the valuation analysis and (2) builds upon the previous steps.
The Valuation of Stock Options for Equitable Distribution Purposes
Craig A. Jacobson
Stock options have become an ever increasing component of total compensation for both executives and nonexecutives. As such, stock options are now included in more marital estates than ever before. It is important for the family law attorney to understand (1) the nature of stock options and (2) the procedures that are commonly used to value the options.
Family Law Valuation Insights
The “Double-Dipping” Issue in Marital Dissolution Cases: A Family Law
The marital dissolution presents a myriad of challenges for the family law courts. These challenges include the judicial determination of an equitable distribution of the subject marital assets. One such challenge is avoiding the issue of the “double-dip” as it pertains to (1) the equitable distribution of the marital assets and (2) the calculation of the accompanying support award. This discussion summarizes (1) the procedures necessary to recognize the potential for double-dipping and (2) the adjustments that may be required by the court in order to accurately and effectively eliminate the effects of double-dipping.
A New Procedure to Estimate the Company-Specific Equity Risk Premium when Valuing a
Closely Held Business Included in the Marital Estate: The Butler Pinkerton Model
The Butler Pinkerton Model can be a useful procedure for the valuation analyst when estimating the company-specific equity risk premium to use in the valuation of a privately held company. In general, market-derived empirical data, as opposed to subjective judgment, typically adds to the credibility of a valuation analysis prepared for family law purposes. However, the valuation analyst should be aware of the potential issues of the Butler Pinkerton Model. And, the valuation analyst should recognize the level of scrutiny that is needed to properly use this company-specific risk premium estimation model.
The Fair Value Standard in Marital Dissolution
James J. O’Sullivan
In most states, the goal of the family law statutes is the equitable distribution of the marital estate. Although these states may strive towards the same goal, the lack of a uniform standard of value has resulted in the judicial acceptance of inconsistent valuation methodology from state to state. For family law purposes, the standard of fair market value is still the most common standard of value among the states. However, the proponents of the fair value standard of value have gained some ground. These proponents argue that the standard of value used in a family law case should reflect the value of the subject business to the marital partnership—and not to a hypothetical willing buyer. In addition, these proponents argue that the value of the subject business to the marital partnership lies in the continued operation of the subject business—and not in the hypothetical sale of the business to a willing buyer. This discussion summarizes (1) the origins of the fair value standard and (2) the debate over its application to business and security valuations performed for family law purposes.