Value to the Owner vs. Fair Market Value For Family Law Valuations
Fair Market Value
Business valuations completed for family law proceedings can differ to business valuations completed for other purposes.
Many times, the value of a business is best and expressed in terms of fair market value. Fair market value is the amount for which an asset should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had acted knowledgeably, prudently and without compulsion.
Applicability of Fair Market Value and Value to the Owner for Family Law Matters
Issues can arise when completing valuations based on fair market value for family law proceedings in cases where a business asset owned by a party or parties to the dispute delivers value, however is not saleable in any marketplace.
An example would be a circumstance where a party to a family law dispute holds a minority interest in a company controlled by their parents. In most cases, an interest such as this would not be marketable, meaning it is difficult to apply the principle of fair market value as it is highly likely that there will not be a willing buyer. Despite this, such a shareholding may hold significant value the party that needs to be understood. This is where the concept of value to the owner is generally applied.
Value to the Owner
Value to the owner is based on the premise that the value of an asset is largely equal to the loss that the owner of that asset would sustain should they be deprived of that asset.
Understanding and conveying value to the owner is a tricky balance between art and science, however is largely focused on assessing the past and (predicted) future income flows generated from an asset.
Value to the owner is frequently accepted in the Family Law Courts as an accepted valuation methodology, however care is required from valuers to ensure that applications of value to the owner are applied in such a way that they are logical and defendable.
Find out more
Quinn M&A’s expert business and company valuation team can assist you with determining the applicability and applying the principles of value to the owner for family law business valuation engagements. Contact Quinn M&A on +612 9223 9166 or submit an Express Enquiry to meet with one of our Directors.