In a recent marital dissolution case, the husband learned a hard lesson about the importance of a business valuation expert’s objectivity and reliability. The Court of Appeals of Iowa affirmed the lower court’s credibility determination, which favored the valuation prepared by the wife’s expert.
District Court Sides With Wife
During the couple’s 16-year marriage, the wife’s job provided a steady source of income and health insurance while the husband developed his three businesses. Both parties presented expert witness testimony on business value.
The Iowa District Court for Polk County awarded the businesses to the husband and ordered a property equalization payment to the wife. The experts presented divergent opinions on the value of one of the businesses. The husband’s expert valued it at roughly $3.74 million. The wife’s expert concluded its value was approximately $5.98 million — and the district court based its ruling solely on this higher amount.
Appellate Court Affirms
Both parties appealed. Among other things, the husband argued that the district court incorrectly valued the business in question. The husband raised the issue of whether the court properly considered a $1.8-million loan from that business to one of his other businesses. The wife also questioned the district court’s treatment of this related-party loan. She claimed the lower court should have considered the loan to be an asset of the business in question, which would have increased its value by the loan amount.
The Court of Appeals found that the district court accurately valued the business. The district court gave the wife’s expert’s conclusion more weight because it was more consistent with the credible evidence. It agreed with the wife’s expert that the company’s ability to secure a loan of more than $10 million for capital improvements supported a higher valuation than the amount presented by the husband’s expert.
Moreover, the district court questioned the reliability of the husband’s expert and his use of “fawning terms” to describe the husband’s businesses. The husband’s expert also used two valuation methodologies without explaining why one was more reliable than the other. The outcome might have differed if the expert had demonstrated that his methodologies were generally accepted and how they affected value.
TheKFORDgroup litigation team holds extensive knowledge and experience in expert witness engagements, forensic accounting, and business valuations. Our experts are trained and experienced in the litigation process. We have extensive experience in business valuations. When you need a valuation expert that is objective and reliable, contact us to assist you and your client. For more information, please call us at 210-340-8351.
Additional information included in this report was provided by PDI Global / Thomson Reuters © 2024