Business Valuation in Divorce Flashcards

A business owner spouse defers billing and delays collecting receivables in the months before a valuation date. A forensic accountant would likely characterize this as:

Answer: An attempt to artificially suppress business value and income

Deliberately deferring revenue around the valuation date is a red flag for income manipulation designed to reduce the apparent business value.

Which professional credential is most specifically associated with business valuation in a divorce or litigation context?

Answer: CVA (Certified Valuation Analyst)

The CVA credential from NACVA is specifically designed for business valuation professionals, and CVA holders frequently serve as expert witnesses in divorce litigation.

When two spouses retain separate business valuation experts who arrive at significantly different values, the court may:

Answer: Appoint a neutral expert or weigh the credibility and methodology of each report

Courts evaluate competing valuations by examining the methodologies, assumptions, and expert credibility before selecting a value or splitting the difference.

Which of the following is the best description of 'going concern value' in business valuation?

Answer: The value of the business as an ongoing operating entity, including intangibles

Going concern value assumes the business will continue to operate and includes tangible assets, intangibles, and goodwill as a functioning whole.

A CDA notices that the valuation report uses 'seller's discretionary earnings' (SDE) as the earnings base. This metric is most appropriate for:

Answer: Owner-operated small businesses where the owner works full-time in the business

SDE adds back owner compensation, benefits, and discretionary expenses to net income, and is a standard earnings metric for small owner-operated businesses.

In divorce valuation, a 'key person discount' may be applied when:

Answer: The company's success is heavily dependent on one individual whose departure would harm the business

A key person discount reduces value to reflect the risk that the business could suffer significant decline if a critical individual (often the owner-spouse) were to leave.

Which of the following statements about the valuation date in a divorce case is most accurate?

Answer: The valuation date varies by jurisdiction and may be the filing date, separation date, or trial date

Different states apply different valuation dates—some use the date of separation, others the date of filing, and others the date of trial—making this a jurisdiction-specific determination.