Page 45 - Family Law Services

Investment Value

Investment value is the value to a specific investor based on the individual investment requirements and
expectations. This standard eliminates the hypothetical buyer and seller, using specific individuals in-
stead. The concepts of investment value and intrinsic value overlap during divorce proceedings in many
jurisdictions.

Fair Value

Fair value is determined based on local law or statute. Each state has case law and statutory law that
identifies unique circumstances and theories that need to be applied in determining the fair value of the
subject equity for purposes of asset distribution in a divorce.

The attorney should be consulted when determining the standard of value because in some jurisdictions
it is a matter of law. However, because the resulting value will ultimately be determined and defended
by the CPA, the practitioner must be able to amply support the standard of value chosen.

Valuation Premises, Approaches, and Methods

The premise of value is an assumption regarding the most likely set of transactional circumstances that
may be applicable to the subject valuation. fn 2 The business valuation process incorporates the concept
of highest and best use, and the premise of value that is selected should reflect the facts and circum-
stances underlying the particular valuation. There are two alternative premises of value: fn 3

• Going concern value. The value of the business enterprise that is expected to continue to operate
into the future.

• Liquidation value. The net amount that would be realized if the business is terminated, and the
assets are sold piecemeal. Liquidation can be either "orderly" or "forced."

In most divorce cases, a going concern premise of value is usually applicable, but there could be situa-
tions in which liquidation value may be appropriate based on the facts and circumstances. But in some
jurisdictions, the practitioner cannot consider liquidation or sale unless it is imminent and foreseeable.

In developing the valuation of the subject company, the CPA should consider the three valuation ap-
proaches:

• Asset-based approach. A general way of determining a value indication of a business, business
ownership interest, or security using one or more methods based on the value of the assets net of
liabilities

• Income-based approach. A general way of determining a value indication of a business, business
ownership interest, security, or intangible asset using one or more methods that convert antici-
pated economic benefits into a present single amount

fn 2 From the International Glossary of Business Valuation Terms .

fn 3 See footnote 2.

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