Whenever a privately held business is among the assets in a dissolution proceeding, certain fundamental issues must be addressed in the context of determining the value of the business. [1]If the business is relatively small in terms of the gross revenue it generates, the first issue is often whether the business is worth valuing.

The cost of having a qualified professional value the business and produce a complete written evaluation report typically exceeds $10,000 at minimum. If after a cursory review of reliable financial information concerning the business there are questions about whether the business has significant value, a less comprehensive approach is likely warranted. For example, a business valuation expert can be engaged to provide an opinion about the range of value of a business without providing a full written valuation report. While engaging an expert for this limited purpose is generally not sufficient if the value of the business is going to be fully litigated, it can often be a prudent first step determining whether the business has a value significant enough to justify having a valuation report completed.

Choosing the engaged valuation expert is a critical decision. Professionals who represent themselves to be qualified to provide business valuation opinions often do not have the same credentials. The credentials and certifications of all candidates need to be examined.

Information must be obtained concerning each potential expert's experience, not simply in terms of their years of professional practice, but also with regard to the profession or industry in which the business to be valued operates.

An experienced valuation professional typically has a reputation in the community. There are many subjective decisions that a business valuation expert must make in the context of rendering an opinion as to the value of a business. Over time, certain experts tend to establish that they are more or less conservative in their approach to these decisions which has an impact on their conclusions of value.

Where there is the possibility that the business valuation expert will be asked to testify, gathering information about the individual's reputation for presenting his or her opinion in a clear, cogent and persuasive manner in a courtroom is important information to have when deciding who to choose.

The projected cost of the professional's work and the time they need to complete the work are important considerations. Business valuation experts typically charge for their work based on set hourly rates. Particularly when a valuation firm is engaged where there are a number of professionals who might be involved in a project, identifying the individuals who will be doing the work and the billing rates of those individuals must be discerned.

The amount of time the professional needs to complete the project is a critical component of determining who to select. Typically, deadlines have been established either by the circumstances relating to a particular situation or by orders of the court making it fundamentally important to establish that the professional valuation expert can complete the work in a timely fashion within the established deadlines.

An individual involved in a divorce will seldom have the ability to decide who would be an appropriate choice to value the marital interest in a business. It is therefore prudent to seek guidance from a lawyer having knowledge in the substantive area of the law involved and experience in the community in order to make a wise decision. Clearly some of the information needing to be considered in choosing a valuation expert is only known to lawyers who have worked with, or against, the valuation experts who are among the field of candidates being considered.

About the author: Mitchell Reichman is a family law attorney at the Phoenix law firm of Jaburg Wilk. He is a certified family law specialist by the State Bar of Arizona.  Mitch frequently writes and speaks on divorce and spousal maintenance. He has expertise representing high net worth individuals who have closely held businesses in their marital community. He can be reached at 602.248.1000 or mxr@jaburgwilk.com .

[1] For purposes of this article we are assuming that the ownership interest in the business is entirely community in character, typically meaning that the business was formed during the marriage. Also, our use of the term "business" in this article includes professional practices.