Valuators can be crucial to litigation testimony

In many situations, litigation may require an objective and comprehensive valuation supported by expert testimony. For instance, a valuation may be useful in divorce, shareholder dispute or taxable transaction cases.

A closely held business frequently needs such a valuation because a market or arm's-length value for its underlying tangible and intangible assets usually hasn't been set. Even if it has requested valuations for other purposes gifting, for example the value conclusion may not be applicable to the circumstances at hand.

And because timeliness is usually important in litigation-related situations, valuations or appraisals several years old are unlikely to carry weight in court.

Let's look briefly at some other common litigation situations that require professional valuation support:

Divorce

A married couple's business is often their primary asset worth more than their house, car and other assets combined. Most jurisdictions require that a value be placed on a business to make an equitable distribution of assets.

Shareholder disputes

When a major shareholder leaves the business, the price for his or her shares must be determined. If disagreement arises over the proposed price of a de-parting shareholder's portion of the business, a valuation can be used to determine an equitable distribution or to prove losses.

Insurance claims

Related litigation frequently requires valuations to substantiate loss of business assets.

Taxable transactions

Tax matters may receive Internal Revenue Service scrutiny and frequently require business valuations and the objective testimony of a valuation specialist. This is especially true in light of the recently released final adequate gift disclosure rules, which require valuations to have stringent documentation and support. Valuation disputes between the IRS and taxpayers may lead to appeals proceedings or litigation in tax court.

Arbitration

In addition to the role as an expert witness in valuation-related litigation, professional valuators sometimes act as arbitrators in disputes. In this role, the valuator is called on to make an independent judgment based on evidence presented from both sides. Professional valuators are excellently suited to be arbitrators when the only issues involved in a dispute are financial.

Invaluable support

These are just a few litigation situations in which professional valuation services can prove invaluable. In this increasingly complex business, tax and legal environment, attorneys can gain an edge by knowing when to consult professional valuators.

(Tom Beisner, CPA, CV A, is a partner with the certified public accounting and business advisory firm of Whitlock, Selim |amp| Keehn, LLP.)[[In-content Ad]]