Should Business Appraisers in Divorce Cases be Jointly Retained?

By David E. Coffman CPA/ABV, CVA

There is a growing trend in divorce cases involving business owners to hire a business appraiser jointly. Before discussing why you should do this, let’s look at what happens if you don’t.

Each spouse hires a business appraiser separately. Since valuing a business is not an exact science, an appraiser makes many judgment calls. Each appraiser makes those calls in favor of their client’s position. The appraisal done for the non-owner spouse comes in high. The appraisal done for the owner spouse is low. Each attorney builds a case to support their client’s appraisal and to dispute the opposing party’s appraisal. The court hears the arguments. Eventually a settlement is reach somewhere in the middle.

A jointly retained appraiser works for both parties. The appraiser should attempt to nail down as many issues as possible upfront with a detailed engagement letter. He/she will make middle of the road judgment calls that favor neither party. The result will be a fair and reasonable business value that will be acceptable, but not totally pleasing, to either party. This value is likely to be very similar to the value that would have been decided by the court using the traditional adversarial system.

Using a jointly retained appraiser is cheaper. Both parties split the fee for one appraisal. Since business appraisals cost thousands of dollars, the savings are substantial. The attorneys have less work to do so their fees are reduced, also. They do not have to spend time building a case to support their client’s appraisal, disputing the other appraisal, and arguing their points in court.  

Other than child custody issues, determining the value of a business is commonly the most contentious and time-consuming event in a divorce. Using a jointly retained appraiser takes less time and reduces conflict. As described above, the attorneys spend less time on this issue. By signing a detailed engagement letter issued by the appraiser, both parties agreed on the key factors in advance.

Attorneys tend to not like the idea of jointly retaining a business appraisal and may try to talk you out of it. Other than keeping their fees down, it flies in the face of their deep-seated belief in the adversarial system. That two opposing sides arguing their cases to an impartial judge will result in a just settlement. Using a jointly retained appraiser sidesteps this system and puts the decision-making back in your hands.

The judges, hearing officers, and masters in family law courts generally support using jointly retained appraisers. They don’t like being forced to decide the value of a business. That is not their job. Using a jointly retained appraiser takes this responsibility away from the court and puts it back where it belongs, in the hands of an independent, experienced professional business appraiser. The courts also appreciate that it streamlines the process and makes more efficient use of the family court system. That is why some jurisdictions, like San Diego Superior Court of California, require a joint appraiser in family law proceedings.  

So far this sounds great, but there are situations where a jointly retained appraiser should not be used. In these situations it is usually a moot point because at least one party won’t agree to do it anyway. If either party is dead set on taking an extreme position, don’t do it. Be careful if one of the parties signs on grudgingly. The value derived from a joint appraisal is not set in stone. It can be contested. A contested value may put both parties back to square one. They may have to hire separate appraisers and fight it out in court or the court may appoint another appraiser. If this happens, all the benefits of using a joint appraiser will disappear. It will cost more and take more time. That is a scary thought, but it rarely happens.

If you decide to pursue using a jointly retained appraiser, you need to make the first move. Discuss it with your attorney, listen to his/her input, and then make the decision yourself. Your attorney may resist, but remind him/her that you are the boss. If he/she won’t pursue hiring a jointly retained appraiser, find an attorney who will.

Once you decide on using a jointly retained appraiser, you need to find one. First look for business appraisal training, experience, and credentials. Next, make sure the appraiser has done joint appraisals before or is least very familiar with the process. If the appraiser doesn’t know the nuances of working for both parties, it may result in an appraisal that is contested or thrown out. It is important that the appraiser be independent and objective. Do not hire the accountant that does work for the business being valued or the tax professional that prepared your joint tax returns.

If your divorce involves a business, you should consider hiring a jointly retained business appraiser. You get essentially the same result (business value). You spend less money. You speed up the process and make it less contentious. What a concept! 

© 2001 David E. Coffman