Prior to starting Caprock Business Consulting, I began my career as a valuation consultant at Whitley Penn, LLP (ranked 47th on Accounting Today’s 2018 list) where I gained important business valuation experience related to marital dissolution, civil litigation, family limited partnerships, tax/estate planning, and consulting purposes. I later worked at Hill Schwartz Spilker Keller LLC where I worked with some of NACVA’s recognized business valuation and financial forensic industry titans, including Carla Glass. Lastly, I worked at (formerly) Montgomery Coscia Greilich, LLP (now part of Baker Tilly), a U.S. top 100 accounting firm. From the onset, I was helping Amarillo, Texas businesses and individuals with their business valuation needs for a variety of purposes including marital dissolution, shareholder disputes, lost profits and damages claims, employee stock option plans, buy and sells, exit planning, deferred compensation (409a), and general consulting. Since 2012, I have been 

I am trained as a collaborative financial neutral by Collaborative Divorce Texas, and am an active member of the NACVA. I earned the designation Certified Valuation Analyst® (CVA) and the Master Analyst in Financial Forensics® (MAFF), which allows me to prepare industry standard valuations for Amarillo business owners. Currently, I sit on the Standards Board for the NACVA and was awarded the 2018 NACVA 40 Under Forty, the 2017 Lubbock Chamber of Commerce 20 Under 40 Award, and the 2017 Lubbock Chamber of Commerce Ambassador Award. I am a regular business valuation speaker to attorneys in the Amarillo, Texas area. I have been recognized as a qualified expert witness and have provided testimony on valuations in numerous state courts in and around the Amarillo area. 

Focus Areas

Two of the areas I enjoy helping Amarillo business owners and attorneys with pertains to marital dissolution and corporate transactions. Each of these are quite different and pose their own unique challenges for business owners and their professional advisors alike. For the purposes of this article, I will focus on marital dissolution (divorce) in Texas since there are much more inner workings.

Some of the largest pitfalls in Amarillo divorce cases that I see is a failure to understand the big picture and where everything fits in, including a business valuation. The marital estate comes into being upon filing for divorce. It represents the assets that must be divided according to the property laws of the state. Currently, each state adheres to either (1) the community property standard or (2) the equitable distribution standard with regard to the division of assets included within the marital estate. The question as to what property is or is not included in the marital estate is often a major issue. An Amarillo business valuation analyst sometimes must value the property before the court has determined the extent to which it is or is not included in the marital estate.

In states adhering to the community property standard, distributable property is referred to as community property. The community property standard is based on the premise of joint and equal ownership of the marital estate. In a community property standard state, all assets acquired during a marriage are assumed (1) to be acquired by the marital community and (2) to be owned jointly by the community. These states generally follow the practice of an equal division of the marital estate upon divorce. Amarillo business owners seeking a divorce in Texas must follow the community property standard because Texas is one of nine states that is a community property jurisdiction.

Separate Property, Community Property, and Goodwill

The Texas Family Code §3.001 defines separate property as:

• Property owned or claimed by the spouse before marriage;
• Property acquired by the spouse during marriage by gift, devise, or descent; and
• The recover for personal injuries sustained by the spouse during marriage, except and recover for loss of earning capacity during marriage.

The Texas Family Code §3.002 defines community property as property other than separate property, acquired by either spouse during the marriage (community property). The commercial portion of the business enterprise is considered a marital asset in the state of Texas. This is goodwill created by the location, reputation, longevity, workforce in place, assembled assets, and operating procedures of the commercial enterprise, which has not manifested itself in another category of intangible assets.

In many Amarillo divorce cases, the inclusion and/or measurement of goodwill as a marital asset is by far the largest issue in the business valuation of the marital estate’s business or professional practice. The classic definition of goodwill is “the propensity of customers to return for repeat business.” The criterion as to whether goodwill exists usually is the ability to earn a rate of return in excess of a normal rate of return on the net assets of the business, after reasonable compensation to operating personnel. The measurement of goodwill often is performed by capitalizing amounts of economic return in excess of a normal rate of return on the net other assets of the business. In its most easy to understand form, goodwill is the value of the equity in the Amarillo company minus the Fair Market Value of the adjusted net equity.

Goodwill can be split into professional/personal goodwill or institutional/commercial goodwill for any Amarillo business.  Professional or personal characteristics of the business is created by the reputation, skill, and talents of a professional or person and is not considered a marital asset in Texas (separate property).

Standard of Value

Unlike a corporate transaction or typical buy/sell arrangement where the value to an Amarillo buyer may be different to the value of an Amarillo seller (Investment Value: the value to a specific owner), the standard of value for Amarillo business in a divorce proceeding is Fair Market Value. Fair market value is based on the price that would be negotiated between an informed hypothetical buyer and an informed hypothetical seller. The Fair Market Value concept is more thoroughly defined in Revenue Ruling 59-60, which is regularly cited by Amarillo business valuators. Those practitioners espousing the fair market value standard say that it is unfair to value the property that one spouse will receive at more than that spouse could realize on a sale. Proponents of the fair market value standard explain, for example:

The relevant point to the court should be the amount the business assets could bring in cash or cash equivalent at the appropriate date. The point of whether or not the Amarillo business or any other asset will actually be sold is beside the point. In fact, there is a sale of sorts which occurs within the dissolution. The net effect of the separation of marital assets is that each spouse purchases a (let’s assume) 50 percent interest in certain assets from their spouse and pays for the purchase by selling back their 50 percent interest in other assets. The transfers occur, and the marital assets are separated. The end result is not substantially different than when both spouses agree jointly to each sell a marital asset and divide the funds received. The primary difference is they are the buyers and sellers, there are no outside parties involved, and the mode of payment is the exchange of interests in the marital assets.

Other Factors

There are many factors that must be addressed in for a business valuation in the context of a divorce, including:

• Valuation Date: This could be the date of marriage, date of separation, date of divorce filing, or the date of trial;
• Discovery: In the practice of law, pre-trial procedures include obtaining evidence from the other party or parties through discovery. This includes acquiring the necessary information to conduct a certified Amarillo business valuation.
• Valuation Methods: There are various business valuation methods to apply to an Amarillo company. Each method is captured within a specific approach (Income Approach, Market Approach, or Asset Approach).
• Business Valuation Discounts: The applicability of valuation discounts and premiums offers further challenges in a marital dissolution valuation. The size of valuation discounts and premiums is often a matter of informed professional judgment on the part of the analyst. Discounts include a discount for lack of control (ownership interest of less than 100%) and a discount for lack of marketability (non-publicly traded company, aka privately-held).

For more information or to discuss your marital dissolution business valuation issues in confidence, please do not hesitate to contact us.