Creative valuation solutions are still hard to find in divorce settlements


Every one knows that families have less income now than they did before
these harsh economic times. But, the impact on valuations performed to
help distribute assets in divorces have been particularly profound. This
topic is central to the opening session today at BVR's 2nd Annual Divorce
Summit.

At the most basic level, courts are starting to see testimony about whether
any employment opportunities still exist. Judge Jacquiline Silbermann
comments that recruitment experts are now showing up as expert witnesses in
some trials.

"Valuators have a situation now where, if the reasonable compensation number
stays high, and revenues drop, you have no operating margin left," comments
Bill Morrison. "You then start to raise questions about whether your
valuing a going concern." So, one of the things that's changing most
dramatically is the question of reasonable comp--since we're all using old
data mostly collected prior to the recession.

Here's a current New York case that demonstrates the situation: in Simkin v
Simkin, a motion to reopen a determination of equitable distribution was
denied, despite the fact that the couple had a $5.4 million investment with
Bernie Madoff. "Very few motions are being granted to amend child support
or maintenance, at least in New York," comments Silbermann. "And you won't
even get in the door with a motion on equitable distribution" as Simkin
demonstrates.

Another case, Goldman v. Goldman (248 N.J. Supor., AppDiv. 1994)
demonstrates problems in states where the valuation date is the date of
complaint. Goldman owned foreign car dealers, and so, after the date of
complaint, earnings fell as foreign exchange rates made foreign cars less
appealing, and the recession stopped high end car sales. In this case, a
later date was used to value the business to achieve equity.

"People hire us to go find the money," says Morrison. "So, we have to help
define reality." Ironically, often the monied spouse is not yet ready to
admit that their stock options are never going to come back, making the
issue of realistic assessment of assets for distribution even more
difficult."

"Another case we're working on now, was a Wall Street guy who made a lot in
'06 and '07, then lost earnings in '08, says Morrision. "So, these people
have spent all their income on lifestyle and fees from the divorce. Now,
the money is gone, and more is owed."

One attendee at BVR's 2nd Annual Divorce Summit has started posting jobs to
see who applies at various salary levels to get a more true market sense of
what reasonable comp is currently. "In the New York City region, you've got
financial people out of work who may not have another career opportunity in
their field, ever," warns Morrison.

Sharyn Maggio also points out that family law valuations are particularly
effected. "You're not seeing deferred comp, phantom stock, stock options,
and the other complex compensation systems--and even 401ks are worth 40% of
what they were," she says.

In states where the valuation date is the date of trial (like Illinois), the
non-monied spouse is trying to delay and delay, hoping that values will come
back, while the monied spouse is trying to settle. "We all have to take
risks and be very creative, including structuring bonuses later," said a
Chicago divorce lawyer. But, "if, as, or when settlement terms are still
very rare," says Silbermann. "Judges tend to want finality."


Categories