Special Edition 2008
Focus on Family Law
Editor for This Issue: James J. O’SullivanIntangible 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
Court’s
Perspective
Matt Thatcher
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
Eric Hamm
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.