Divorce litigants often disagree on many things, but the valuation of major assets in the marital estate is a common cause of conflict. Of course, a variety of factors contribute to the complexity of assigning fair values, including the complexity of an asset (like stock options or executive perks), rarity (obscure antiques or collectible objects), novelty (cryptocurrencies or online businesses), sentimentality (personal value may be higher than market value) and other factors.
Evidence of value
Divorce litigants can stipulate to property valuation or at least to the worth of the most valuable assets. This could happen through negotiation or they could agree, for example, to jointly retain an expert qualified to evaluate the particular type of asset at issue and accept their conclusions. If the litigants cannot come to a meeting of the minds on values, the judge in the divorce case must assign worth based on evidence before the court.
An experienced family lawyer can identify appraisers or evaluators respected in their fields of expertise to work on valuation issues for a litigant. An expert might assist in negotiations, conduct investigations and research, create written reports or testify in the trial.
Three allowable sources of valuation evidence in Connecticut divorce trials include expert opinion, the judge’s own knowledge and the asset owner’s opinion. When the marital property is substantial and involves major assets, litigants normally engage experts to present their opinions on worth as well as the supporting methodology that got them there.
Persuasive characteristics of valuation experts
The judge has broad discretion to assign values, including the valuation method to get there. Expert evidence is often the basis of these decisions. A couple of recent Connecticut trial court opinions discuss what the judge found persuasive in expert valuation methods or conclusions – and why they discredited others.
Objectivity, integrity, attention to detail
In a recent 2023 trial in the Stamford/Norwalk Division of the Superior Court, an “iconic” Cape Cod inn and related businesses were part of the marital estate, all owned directly or indirectly by the husband’s LLC. Both litigants retained their own real estate appraisers and business appraisers. Hearle v. Hearle, 2023 WL 7489933 (unpublished 2023).
The court adopted the fair market value (FMV) findings of the husband’s realty appraiser, noting that this expert found specific, comparable real estate sales, such as a “charming inn” sale price to support the FMV of the charming inn at issue. The judge also liked that this expert did not want to know which litigant he was working for, probably to increase his objectivity.
The wife’s real estate expert, by contrast, focused on finding comparable sales in the surrounding area even if they were not the same kinds of businesses – “comparing apples to oranges.” The court wrote that this appraiser increased his appraised value $1 million after the wife contacted him.
The judge also approved of the husband’s business valuation expert, who normalized the husband’s salary using the FMV of his “active work” instead of his profits as owner. The court also raised concern that the wife’s business appraiser did not normalize rent charged by one subsidiary to another below market rate. “[I]nflated or deflated rent [could] [warp] the valuation.” The wife’s expert said this rental normalization was “beyond his scope.”
Diligence, reasoning, precision
In another 2023 divorce, the court in the Fairfield Judicial District at Bridgeport credited the wife’s expert witness’ valuation conclusions after appraisal of three real estate parcels owned by the family business. The husband did not present opposing expert opinion of value, and while he testified about needed deferred maintenance on the property that would impact value, he also submitted no expert or other evidence to support his assertions of maintenance costs, so the judge did not find sufficient evidence of maintenance needs.
Each litigant presented an expert to determine the value of the family business itself. The experts’ methods were different as were their conclusions. The court adopted the findings of the wife’s expert, calling them “well researched” and well-reasoned. This expert used an “income approach to value” and evaluated the business as a “going concern.” He used complex calculations and adjustments – which the judge found fair and reasonable – to get to the final value.
On the other hand, the husband’s expert evaluated the business for its liquidation value and not as a going concern, a choice that the judge rejected considering the workforce of 18 people and annual receipts over $2 million. The court criticized this expert’s reasoning at almost every step, noting that the expert’s 40% discount for “lack of marketability” was “unreasonably high.” The husband himself provided valuation to the expert of business assets like equipment, but there was no “independent investigation” of value.
Practical takeaways
Reasonable, informed valuation is a necessary component of a fair and equitable distribution of marital property. Valuation-expert traits and practices are therefore crucial in divorce litigation. After all, asset values directly impact the judge’s decisions about property division and alimony.
A seasoned family lawyer can identify solid professionals for consultation and evidence production. An expert is particularly important when assets are complex, novel or rare, and finding a professional with the necessary experience and credentials may be a more challenging endeavor. An attorney can perform the necessary sleuthing to identify valuation professionals with the right qualifications and knowledge of an asset type.
