#29 ROI on Critiquing Family Law Valuations

Cost! That’s the reason I hear time and time again from family lawyers as to why their client is not willing to obtain a critique of a Single Expert report or (heaven forbid) the 'advice' given by the long-standing family accountant as to the value of the business or family group. 

To which my immediate response rolls out recent critiques I have undertaken, the common issues observed and the ‘return on investment’ that was received by the client.

It is my strongly held view, that if a party to a family law proceeding has gone to the trouble (and expense) of obtaining a Single Expert valuation - then obtaining a critique (which is generally a fraction of the Single Expert costs) should be the next step in the process.

Valuation is a mix of art & science, both of which are up for interpretation, debate and discussion - so the ideal held that one Expert's view is the correct and only view is fundamentally flawed.

So here goes on the evidence of critiques previously undertaken (actual numbers and facts have been modified, but this gives you a clear idea of the point I am trying to get across)……

Example 1.

Facts

• Retained by the Husband who operated the subject business
• Value a Business A was $900,000, being an FME of $300,000 and a multiple of 3.0x

Findings

• Review was undertaken for an agreed fee of $3,000 plus GST
• Review identified an error in the calculation of the FME which failed to capture the value in the bottom cell containing the assessed commercial remuneration of the Husband of $120,000

Result

• Client issued questions to the expert which resulted in the FME being reduced by $120,000 and the value of the business by $360,000

ROI – 12,000% or 120 times the investment

Example 2.

Facts

• Retained by the Wife
• Value a Business A operated by the Husband was $1.6 million of which the Husband held a 50% interest, being an FME of $400,000 and a multiple of 4.0x

Findings

• Review was undertaken for an agreed fee of $5,000 plus GST
• Review identified several issues relating to the basis of the Expert’s judgement including:

1. The discounts for lack of control (DLOC) & lack of marketability (DLOM) applied being too high for a 50% interest and given the history of business decisions between the Husband and his brother
2. The weighting applied to the FME was based on short-term earnings (COVID affected) and did not factor in long-term economic cycles in the industry

Result

• We assisted the client in the preparation of questions to the expert, including the provision of data supporting a reduced DLOC & DLOM
• The FME was raised by Single Expert and the discounts applied to the 50% interest were reduced
• The value of the Parties’ share increased by over $100,000

ROI – 2,000% or 20 times the investment

And there are more examples just like these two above……

So the real question from a family lawyer to their client should not be based on the cost of the exercise but on the potential cost of NOT seeking a critique.

For more information on the services we provide to family lawyers, please contact myself or your local Grant Thornton Australia forensic accounting expert.