By Smolin Lupin, AAML NJ Gold Sponsor
An attorney advocates for their client. Part of that is choosing a trusted valuation partner who can give a fair valuation, uncovering all the details and information to create an accurate big picture analysis. Another part of that is knowing what the valuation process looks like.
Below, we delve into what matrimonial attorneys should know about valuations.
Not all assets are obvious
Each spouse’s income and cash flow may not be obvious from tax forms alone. An experienced forensic accountant knows to cast a wide net. While this may mean looking for a Form 3520-A to identify any offshore foreign trust accounts or review of the Report of Foreign Bank and Financial Accounts (FBAR) on Fincen Form #114, it may also mean a streamlined document request, such as reviewing the wills of relatives, like parents, grandparents, or other family members.
Expect thorough document requests
Some clients may be surprised by extensive document requests, yet it’s a crucial part of the process. Forensic accountants are adept at looking for clues to discover hidden assets, such as whether or not reported income can support the family’s current standard of living.
Expect document requests for income and assets, as well as everything where a client is either a fiduciary or beneficiary of any trust assets.
Cash-intensive businesses will be scrutinized
In any business that conducts a lot of cash transactions, owners are susceptible to underreporting income. Valuation accountants may examine the books with an eye toward whether or not the business’s numbers match up to other, similar businesses.
If they suspect not all the cash is being accounted for, they may use surveillance to monitor the level of business to see if it matches up with reported numbers.
Valuations must be independent
A client may sometimes assume that because you recommended someone, they can produce results favorable to the client. Since this isn’t the case, it can be helpful to emphasize their independence upfront.
Stay tuned to professional standards, statutes, and case law
When valuation accountants don’t follow the objective standards set out by their profession, they may be barred from testifying in court. Needless to say, this does your client more harm than good.
If your client understands that having an impartial valuation is in their best interest, that recognition can make the process proceed more smoothly.
Calculations aren’t valuations
Your client may want to save money by paying for a calculation of value as opposed to a more costly valuation. While calculations typically cost less, they are limited in scope. They aren’t subject to the same complex process that attempts to determine, say, the market value of a business. Calculations are like trying to get a sense of a house by looking through the window. They gather information, but they aren’t the same as actually walking around inside.
Frequently, the valuation provider will even include a disclaimer in their final report which says that if a valuation had been done instead of a calculation, the results might have been different.
In short, divorce can be a costly process, but clients trying to cut costs by getting a calculation will ultimately do themselves more harm than good. The same can hold true for using a joint service provider.
Seek providers who understand simplicity
If you’re recommending a list of service partners to clients, make sure those partners understand the value of simplicity when presenting in court. It will make your life much easier if they can use everyday language instead of accounting jargon or an overwhelming amount of data. Instead, encourage your client to seek someone who can succinctly convey information and use visual supports, such as pictures and graphs, to effectively communicate their point.
Stay on top of tax changes
While the Biden administration has not yet passed any tax changes through Congress, President Biden has repeatedly communicated his desire to do so, including by releasing the Green Book breakdown of what he would like to see happen.
If new tax laws are passed, valuation providers will need to move quickly to have their analysis processes reflect the new reality. Matrimonial attorneys should keep an eye on the news—and make sure the valuation providers they work with are doing the same.
Have further questions about valuations? We’d love to help—contact our experienced CPAs at any time.