BVR Logo July 24, 2019 | Issue #202-3

BVWire is your go-to source for the latest in the business valuation profession. Highlights for this week include:


In Florida divorce, expert's 'with-and-without' valuation withstands appeal

In a nasty Florida divorce case, an appellate court recently upheld the trial court’s valuation findings concerning the husband’s 50% interest in a successful company that operates in the waste disposal industry. The trial court adopted the valuation of the wife’s expert, which included the value of certain intangibles belonging to the company but excluded the value of the husband’s personal goodwill. In Florida, enterprise goodwill is a marital asset, but personal goodwill is not.

Separating out personal goodwill: During the marriage, the husband set up a business, soon selling a 50% ownership interest to a third party. The husband had sole ownership over the remaining 50%. The company facilitated waste removal in that it had relationships with companies that generated waste and those that hauled it away. Apparently, the company did not, itself, remove the waste.

A few years before filing for divorce, the husband sold a 45% interest (nonvoting stock) to a trust but retained a 5% interest that represented 50% of the total voting rights in the company. Ostensibly, he did so for estate planning purposes. But the trial court noted that, at that time, the parties’ marriage was breaking down and that the wife was not properly informed of the sale and its implications.

The trial court first determined that the totality of circumstances suggested the sale “did not serve a valid marital purpose and was unconscionable.” The transaction was the husband’s “unilateral decision” and did not change the classification of the husband’s interest from a marital asset to a nonmarital asset. The value, for purposes of equitable distribution, was the full 50% of the company’s stock (not the retained 5% interest), the trial court decided.

The parties’ experts prepared fair market value determinations but disagreed on how to value the husband’s interest. The husband’s expert proposed a net asset valuation, noting, however, that the company had no significant assets as it didn’t produce anything or own much. According to this expert, all intangible value was linked to the husband’s (and his business partner’s) client relationships and therefore was not a marital asset. This value represented nothing more than the husband’s future earning capacity, which must not be considered in dividing marital property in a divorce proceeding, the expert said.

The wife’s expert valued the company’s assets and teased out the value of all identifiable intangibles which, he explained, belonged to the enterprise (including workforce, trade name, employees’ noncompetes, and customer relations). Proceeding from the premise that a buyer would not buy the company without having a noncompete for the husband in place, which evidences personal goodwill, he used the with-and-without method to determine the value of the husband’s noncompete and subtracted this value from the overall valuation.

In crediting this expert’s testimony, the court emphasized that the valuation did not include any personal goodwill of the husband. The court said it accepted the wife’s expert’s “methodologies for separating out any value related to Husband’s personal goodwill.” A state court of appeal recently affirmed the trial court’s decision per curiam, without issuing an opinion.

A digest of Muszynski v. Muszynski, Case No. 2013-DR-18828-O, Final Judgment of Dissolution of Marriage, Circuit Court of the Ninth Circuit, Orange County, Fla. (Oct. 4, 2017), Bob Leblanc (Circuit Judge), aff’d per curiam Muszynski v. Muszynski, 2019 Fla. App. LEXIS 9913 (June 25, 2019), and the court’s opinion, will soon be available at BVLaw.

Part 2 of our cost of capital survey: risk-free rates

Please take part in the second in our series of short surveys to investigate how appraisers derive cost of capital in their valuations of private companies. The first survey—on overall approaches—revealed some interesting results. This second survey is on risk-free rates, so please take just a minute or so to take the new survey by clicking here. All responses are anonymous, and we will present the results here. Thank you!

CPAs worried about financial instrument valuations

Over half (55%) of CPAs at companies with complex financial instruments on their books say they are concerned about the valuation of derivatives, according to the AICPA’s “Economic Outlook Survey” for the second quarter of 2019. Financial instruments such as mortgage-backed securities, interest rate swaps, or other derivatives are becoming increasingly complex, and they are taking up a larger percentage of balance sheets. About 70% of CPAs polled expect financial instruments to become more complex over the next one to three years, compared with 1% who expect them to decrease in complexity. Over half (53%) believe there is not enough market awareness of complex financial instruments to prevent a financial crisis, compared with only 22% who believe there is adequate awareness. Also, 56% say it would be easier to determine the value of complex financial instruments if they were measured and reported consistently and transparently. The AICPA recently launched the Certified in the Valuation of Financial Instruments (CVFI) credential and published a Financial Instruments Performance Framework document.

A few recent research papers of note

These papers can be found at the Social Science Research Network. Click on the paper title to acquire the entire document:

  • Enterprise Valuation, Risk, and the Modern E-Business,” by Alan M. Shaw (Benjamin N. Cardozo School of Law). This paper presents a novel method of ascertaining the market risk of e-commerce startups consisting of a “dispersion analysis” beta estimation model.

Do you have a tale from the trenches?

The August 2019 issue of Business Valuation Update contains the first in a series of articles that we call “Tales From the Trenches.” It’s a woeful tale from veteran appraiser Bob Kleeman (OnPointe Financial Valuation Group LLC) about an engagement of his in which the opposing expert relied on the internet for company research instead of going on a site visit. These articles contain valuable lessons to be learned based on the experiences of seasoned valuation experts. While you may be able to find some of this advice in books, only real-life experiences can highlight the nuances that can only be found in the minds of the experts who have lived through many engagements. Do you have a tale to tell? Contact the Business Valuation Update editor at

BVR now offers the Johnson/Park DLOM studies

To estimate a discount for lack of marketability (DLOM), business appraisers typically look at the restricted stock studies and the IPO studies. The trouble is, just using the averages from these studies can be challenged because this approach lacks analytical support for the discount. One of the ways to bridge the gap between the studies and the DLOM is the Johnson/Park empirical method. This methodology has been used in several tax court cases including the first family limited partnership (FLP) case to go to trial. Also, it is the third most popular method business appraisers use to determine DLOMs, according to a BVR survey. The method highlights the relation of the DLOM to the return on the investment and quantitatively measures the impact of the rate of return as a function of the DLOM. The “2019 Discount for Lack of Marketability Study” provides objective rate of return measures to implement the Johnson/Park empirical method and includes a thorough explanation and example on how to apply these data.In addition to the most recent study, BVR offers all editions from 2014 to 2019. Click here for more information.

Feedback wanted on proposed Hong Kong standards

The International Valuation Standards Council (IVSC) and partner organizations would like feedback on the “Hong Kong Business Valuation Quality Initiative,” a proposed “standards and professionalism framework” to support improved business valuation practices in Hong Kong. The framework is the result of extensive engagement with stakeholders across the business valuation and related sectors in Hong Kong as well as regulators, professional bodies, and business chambers. The document contains 14 questions for feedback and comments that are due by November 15.


BV movers ...

People: Cameron A. Scott, ASA, has joined BerryDunn (Portland, Maine) as the firm expands its valuation services group; he was previously with MarcumJeff Johnston, CPA/ABV/CFF, JD, LLM, has joined Peterson Whitaker & Bjork LLC (Minnesota) as a partner; he will lead the firm’s new advisory practice, which includes business valuation, dispute advisory services, forensic accounting, and insurance recovery … James A. (Jim) Gravitt, CPA/ABV, CBA, CFE, has joined Louisville, Ky.-based MCM CPAs & Advisors as a consulting principal and member of the valuation services team; he is the former vice president of business valuations at Hilliard Lyons, a wealth management firm … Hunter Outcalt, CPA/ABV, has been named as a new partner at HealthCare Appraisers Inc.; he specializes in business valuation, intellectual property valuation, and transaction consulting services.

Firms: Indianapolis-based Somerset CPAs PC has acquired Peters Browning & Co. PC, also in Indianapolis; the acquisition adds two partners and nine other professions, bringing the total number of Somerset employees to 223 and 35 partners … Miami-based Kaufman Rossin has launched Kaufman Rossin Wealth, providing financial planning and investment management services … Melanson Heath (Nashua, N.H.) has merged with Nashua accounting firm Seelye & Schulz PA CPAs effective July 15.

Please send your professional and firm news to us at

Upcoming BVR training events

  • Using Asset Attrition to Determine Useful Life (July 25), with Raymond Rath (GlobalView Advisors). Part of BVR’s Special Series on Fair Value.

    Learn how to measure the attrition and, ultimately, remaining useful lives of all asset types. This will be a discussion of the principles, methodologies, and professional guidance that go into these measurements.

We welcome your feedback and comments. Contact Andy Dzamba (Executive Editor) or Sylvia Golden, Esq. (Executive Legal Editor) at:

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