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When you're going through a divorce with a business owner, do you own half of that business? We talk with Certified Valuation Analyst (CVA), David E. Amiss about that and more when it comes to value.
Show Notes
In this episode
- David assists attorneys, business owners, and other professionals in determining the value of a company or interest. He focuses primarily on family law, gift and estate, and mergers and acquisitions.
- His clients enjoy working with him because of his years of experience and choice to pursue long-lasting, trusted relationships. David strives to go beyond just providing a report; instead, he finds ways to communicate why business value is important and help his clients understand every aspect.
- David works with Carr, Riggs & Ingram (CRI), a Top 25 nationally-ranked accounting and advisory firm driven by relationships to cultivate growth.
- What do you need to do to get an accurate business evaluation? We talk about the process.
- In a divorce, people often assume their spouse's business is worth more than reported because of money paid under the table, etc. David says you can pay his firm 10-20k to forensic investigation if you believe they are hiding money, but you may be losing money if they are not.
- There are three ways to determine the valuation of a company
- The asset approach (the fair market value of those assets minus debt)
- The market approach (looking at the sale price of other businesses similar to the company being evaluated)
- The income approach (value=benefits over risks)
- When two spouses are in the same business, they each secure services of a firm to get the business evaluated. How do you handle it when the valuations differ?
Help your friends going through a divorce go from victim to victorious and bitter to better.
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What is Ex-it Strategy?
Your no bullsh$t guide to divorce with experienced attorneys from New Direction Family Law and guests and professionals who have been there. Unfiltered discussions to help you move from victim to victorious and from bitter to better.
ES 42 David Amiss
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Elizabeth:
Hello everyone. I'm Elizabeth Stevenson. I'm a partner in New Direction Family Law, and generally I have my partner in crime. Sarah, hi. Who's a partner in the law firm. gonna say partner. I know, but the day have my other partner in crime. It is Jim Bordeaux. That's
Jenn: me, the director of public relations. This is Sarah's currently.
She's a new mom I know with her new baby girl.
Elizabeth: Yeah. So we got a new baby at the firm, so we're excited.
Jenn: That's right. She'll be back soon though.
Elizabeth: Yeah. . Yes. So we're excited today we have a guest,
David , tell us who you're. And what you're, what you have to do with family law, and then we'll delve a little deeper.
David Amiss: Yeah. So I'm public accounting firm car rigs in Ingram. So traditional public accounting firm tax and audit, but more importantly business valuation consulting things of that nature, litigation support.
So what we had to do with family law is business evaluation and litigation support. So we value businesses. Oftentimes husband and wife own business and they're separating and we gotta know what the business is worth and we can help with that.
There are other areas in which we can help as well. Pension evaluation and things of that nature. But generally I like to think about it as helping. The attorney and more importantly the spouse crossing the divide, getting from where they're at to to post after this,
Elizabeth: right?
And Jen and I were to talk about this before we started. I don't, and people may know this, but if you're married and one spouse is a partner in a business or owns a business, you own that business too. In a marital way, you're entitled to whatever half of the value is. So if there's only one owner, you're entitled to half of whatever you might find the value to be.
If they're two, then you're entitled to 50% of his half, and so of that. So it's really. At the end of the day, you are a very important part of dividing property because attorneys don't know what a value is. A judge doesn't know what a value is, and so you're the person that tells them what that is,
David Amiss: right?
Yeah, that's right. And I think just on the real practical level with, if we're talking about a more simple marital disillusion, let's say that there's the house that they, the couple owns the house and they own a business at the end of the day. One of the, one of the spouses is probably gonna want the house, right?
And to stay in the house. How are they gonna do that? Are they gonna, are they gonna pay the other side for half the house? Or is the business potentially that the other spouse is working in, is it worth equal to the house? And in a perfect world, it's nice to split that. That would be so
Elizabeth: perfect.
Yeah. You keep yours. I'll keep mine. That'd be too easy, guys. .
David Amiss: But it, it's why the value's important. What is the value, right? And that's a big deal. And at a real practical level if the spouse wants to stay in the house, do they have to pay for it, right? If you will. Or you take the business and go on.
And so that gets real practical when we're even thinking about smaller marital estates, if you will.
Elizabeth: So do you see a lot of. Couples who may be separating that actually work in the business? Or is it more like the wife would own the business and the husband may be an officer or not have any part of it at all?
David Amiss: Typically it's one spouse or the other that's working in the business. And the other one make it a paycheck but not commensurate for any duty that, or right or function that they're doing. But it's usually one. And the one that doesn't own usually thinks that spouse is running a bunch of comp.
There's a bunch of income that's not reported and it's worth zillions of dollars. And it's you know what? Let me pay you. If you think it's worth that much, then you pay for it and run it.
Elizabeth: Exactly. And they change the tune. So what do, what's, what do you need to know? What do you have to have in your hands to do?
Business evaluation. I'm asking that because when people come see us, especially if you're not the person who's in the business, we want them to start gathering as best they can. Some documents. So what would you say is important to have so that you can figure out what that business
David Amiss: is worth? I think there's there's probably some triage that goes on there, right?
We gotta have good data, good starting points, so tax returns. , financial statements, whether they're compiled, reviewed, or audited, but financial statements, we gotta have a starting point and that's non-negotiable.
Elizabeth: So what would, what can you, because dumb it down.
Yeah. So what is a financial. What do you look, when do I tell a spouse to go look for a financial statement? What am I telling that person to look for?
David Amiss: Great question. Great question. So when I think financial statement, I think at the very least, balance sheet and income statement. So the balance sheet is gonna summarize all the companies, the business's assets, liabilities, and equity, right?
Assets, less liabilities, will equal the equity. Or at least they should. And so everybody has a financial statement, and in some businesses, if they have debt or if they're a contractor and they have to have bonding , insurance bonding, things of that nature. Or perhaps they're trying to get a license, they have to get financial statements that are what we would call audited.
Or reviewed things of that nature. But at the very least, Somebody has to have data that they're using to prepare a tax return. So balance sheet and then income loss statement. So income loss, just basically the current year's revenues, right? Minus expenses.
Elizabeth: Okay. And Here's my question is that I have a lot of, not a lot, but some clients will tell me it's like like we were talking about, okay, there's a lot of cash that goes under, I'm doing window tending, or I'm doing car maintenance or repair, and it's paid in cash.
How do you, can you capture that?
David Amiss: So this this is a little bit the scary part, right? . Yeah. . And I think if you're considering going through divorce and you think the business is worth something, you think some of that's going on, there has to be a little bit of. Cost benefit analysis, right? so you can pay me if you want to 10, $20,000 to go in there and search for unreported income or, and figure out how we can support that there is unreported income. But how much do you think it could possibly be? If it's $5,000 a year then and that didn't matter. But but we can go in there and begin to run some analysis.
Look at personal bank statements, things of that nature. And begin to say, Hey this is all the income that we see. This is what it looks like it is costing to live on. What's the delta? What's the difference? And if there is, then we have some questions to ask and we start digging a little bit
Elizabeth: there.
Right? Does anybody ever ask you, this is not necessarily a business evaluation question, but it's like an alimony or a child support question, is what I tell clients is, You can figure out what somebody's income is by looking at how they, just like what you said, how they live. You got a big nice car payment, you're big them in a big house, but you're telling 'em you make $25,000 that can possibly.
Be true. Can you be, could you be helpful in that situation? Even if it's not a business? Can y'all go and dig down and see if that's true?
David Amiss: I think inside of a equit distribution context or out
Elizabeth: of it? Or out of it. If I was just doing I wanna know what your income is cuz I want you to pay me some alimony and you're telling me you don't have the ability to do that.
Oh yeah, a hundred percent.
David Amiss: Just in doing some analysis on rental property, things of that nature and looking at the bank statements and how they correlate looking at the debt payments, things of that nature. We've been able to identify properties that exist before, which absolutely helped in the distribution of assets.
Right.
Elizabeth: So that, so it's just, people I've got a case where people hide, that the, it wasn't a CPA who did the books, it was someone who was not a cpa. . And so the owner of the business just gave this. What he wanted him to see. And then when we started digging down through.
We saw things who were a little different. .
David Amiss: Yeah. I think that's the hard part for me. Because you're looking at me and the client's gonna look at me and be like didn't, and it's we're, when I do evaluation we're not doing a forensic engagement.
And that's why we gotta be careful and the attorney understand this and gonna appreciate this. Define the scope and what are we engaged to do? What's the contract for? And cuz I can't go. I can't look at every transaction that occurred on a general ledger, which essentially is just a summary of every transaction of the company, right?
I can't look at that. I could if you wanted me to, but that's gonna cost a lot and not be beneficial. And so we've gotta use expert judgment and in our experience to say, Hey, where do we need to dig? And and some of the ways that we. Try to identify that or at least shine the light as looking at historical analysis.
And so we look at revenue and expenses over several years and begin to say, Hey what's the. Explain the trend for me, if you will. There, the office expenses is even for about four years, and then one year it spikes and so what's going on there? Things of that nature. And so there are some tools in our toolkit to identify stuff without going full board forensic, but we can if we need
Elizabeth: to.
So what do you, when you value a company, what do you. Looking what gives the company value?
David Amiss: Yeah, good question. I think I define that by telling you what kind of approaches we can do. And so in valuation we can determine the value of the company really through three approaches. The asset approach, which is the fair market value of the assets.
, that's fair market value liabilities. That's the asset approach. And so if you if you own some equipment and you have some cash in the bank, some accounts receivable, what's the fair market value of those? At less any. That's the value of the company. Okay. The second approach is the market approach.
So we have access to businesses that have sold and so we'll go and look for businesses that are similar to the company that we're valuing, and we look at the sales price of that business as compared to their, the revenues and the income, et cetera. And we can derive multiples from these these transactions that have already.
Then apply them to our company. . And that's the market approach. And I think it's obvious why it's called the market approach, the income approach is the one we use a lot and. So the income approach, if you like. Mathematical formula. . Oh my God. It's easy. It's easy. Hang with me.
Hang with me. Okay. All right. Value equals benefits. I can
Elizabeth: writing this down, ,
Jenn: where's Ashley? She was just here talking about she loves
David Amiss: numbers, value equals benefits over. And let's say V equals B over R, right? Benefits over risk, right? When you make an investment, let's say you buy What's a appropriate GE stock or something?
Something that's okay to buy . You're buying that for future rewards and benefits, right? You're not buying that for what it's done in the past. What it done, what it's done in the past may contribute to why you would buy it. But you're buy, you're buying it for future benefits, either earnings or cash flows dividends or capital appreciation, right?
Benefits benefits over risk. And so risk being the discount rate, what's the required return? For you to invest is money in the company. And so the way we value business and their income approach is determine what we think the benefits are gonna be. And so a lot of times we'll look at the last five years tax returns and say, Hey, what's the profit here?
What's the cash that's producing or earnings? We take that number. After we do some adjustments, we would take that number and then apply a discount rate to it to get the value of the company. We use that approach the most because oftentimes it's gonna capture, here's another term the goodwill of the company.
Because the asset approach, it's just gonna be a lot of times the tangible, the hard assets. There's also a name recognition. There's also an assembled workforce. There's a lot of intangible benefits and the income approach is gonna capture that. And so oftentimes it's better than the asset
Elizabeth: approach.
So if, let's say that like your business is your, is named after you, let's say . Is there a value to it if you go away? Like I get like the other spouse, the court awards it to the other spouse. Is it that name? And you can, but you're not the face of the.
Does that figure into
David Amiss: your are you saying, is there, what if the value of the company is directly related to the net one particular person, right? Yeah. In North Carolina, it's a great question. In North Carolina the standard of value really is it's fair market value and investment value, right?
Let's let's talk about goodwill there for a minute, right? Because, if. Let's say that somebody owned a company a contractor owned a company and it produced income for him. A return of income, like a W2 compensation. , but then also it had an element of income beyond that.
So that would be personal goodwill, right? Cause that person were to leave. You probably couldn't sell that. And there's no value there, but there's value to the person that holds the interest. And so in North Carolina, personal goodwill, which is what we're talking about there, there's goodwill that's connected with a person.
Not with an enterprise. Personal goodwill is part of the marital estate. Okay. And even though it's a benefit that you can't sell it's part of the marital estate. And so it has value even though you could probably never actually sell
Elizabeth: it. Yeah, it does make sense. Yeah, that's what I was asking. Like there is a value to having.
The name, even though that person went away, nobody would want the, your company probably, but there's still a value to it. Cause they built it
David Amiss: Absolutely right. It's value to the holder if those terms make sense. And so it's, there's value to the holder, but not value in exchange, like fair market value.
It's in the market. Could you ever sell this? Probably not, right? But there's value to the holder. And so as you're dividing up marital estate you gotta include
Elizabeth: it, right? The point of business being a business owner sometimes is to get your personal expenses paid and try to run those through the business and then get your taxes as low as possible.
So is that if I looked at a tax return, would I just take that and assuming that was what the company had, Like I look at gross receipts or schedule seat or whatever that would be.
David Amiss: Yep. This is, we're doing evaluation for equi distribution. We gotta think about fair, also fair market value.
So we have to think about what would a willing buyer do? And so small business owners are incentivized. For a lot of reasons to pay themselves more or less than what a reasonable amount or a replacement compensation, if you will. So we can't just take the tax return per se, we have to go in there and we have to look at and say, Hey, what's reasonable if you owned a business and I was gonna buy it, what would I, how would I run it if you
Elizabeth: want?
Okay. Makes sense. So what's the what would you tell like the spouse that really wasn't involved. That business, even just not thinking about getting separated, let's say. What do you, what would you want them to ask their other spouse? Have a monthly meeting, sit down, let's talk. What do you need to see so that you can still of be involved and know what's going on?
David Amiss: I think I'd encourage 'em to have an open door policy with a, with their, with a spouse that owns it and with the. And with the cpa, whoever's doing the, whoever's doing the books . And so there's reason to know that. And I think oftentimes what's interesting is even if the, not, if there's a spouse that doesn't actually own part of the business, they're an officer.
And so they have, they're an officer. They have access, I think, rights to, to those books. And But they may get pushback sometimes about you can't see that. And it's I'm an officer, I need
Elizabeth: to be able to see that. And sometimes you have to get court orders to make sure that happens.
Unfortunately. But yeah, they have a right to it to see it, even if they're not an owner, but if they're officer in the company,
David Amiss: they do. Yeah. And I think it's a good thing to know what's going on. At least in general. Sometimes they don't. And and we got a hill to.
Elizabeth: So what do let's say that two, two spouses are like 50 50 partners in a business. I'm assuming that one side's gonna hire you and the other side's gonna hire somebody else. , what's the odds that y'all gonna come up with the same number? ? Gosh, I,
David Amiss: I. I hate that question ,
Elizabeth: but
David Amiss: I shouldn't.
That's valuation theory suggests that I should not be my standard say that I shouldn't be an advocate for anybody, right? I'm an advocate for my value. And you're asking the question because inevitably you've seen it. And one evaluator came in at this mount and another one at this mount.
So just last week I did evaluation and I came in at x we just call it a hundred hundred thousand. And somebody came in a whole lot higher. And I'm like, I have no idea how you came up with that. And and so I hate the question because it. It shines a light on something that happens often, right?
There are values that that are very different. But there shouldn't be in theory, if we're working with the same
Elizabeth: information, if it's the same standard that you're looking at and applying the same principles. Yeah,
David Amiss: I think there are room for differences in judgment, right? If we're, go back to what I said earlier about normalizing or adjusting compensation, what is reasonable compensation?
Is it 150,000 for the owner? ORs a hundred and ORs a hundred thousand, right? And that difference, that 50,000 difference could have a big effect on the business not millions of dollars. The other thing is, do we have access to the same information? So the person that owns the business is their evaluator having access to more of the information than the other one.
That's great. And that can cause difference as well. But I think in the perfect world, those evaluators could get together and talk and say, Hey, in perfect world , what's going on? Because it's gonna come out sooner or later. And one of 'em is, one of 'em is if there's an error and through that convers.
They can find that area, find it out before you go to,
Jenn: Can that be done? Is that I just think about attorneys or would that be a conflict of interest if you've got,
Elizabeth: I mean it depends on if it's work product or not. I don't know what your ethics are, if call up and ask.
If you're a mediation you can probably ask the question, but I don't think that would happen generally that. Two experts would get together and figure out who made the mistake. Maybe I'm wrong, but ,
David Amiss: I, I think they can. And I don't, I can't remember the context or in what stage it was in.
Was it before mediation or after mediation? Before court. But there was some sort of, somebody asked and said, Hey, could y'all get together and talk or would you be willing to, because the values were so far apart. And I do think that unless there's, and there's probably reasons why you why I wouldn't wanna do that.
I also shouldn't be terrified that somebody else is gonna see my value or be critical of it. Like at some point it's gonna get out. See, it
Elizabeth: depends on cross examine you as some point. That's right.
David Amiss: And hopefully I've done a good job and I'll be willing and ready to defend it. And to, to another evaluator.
I don't want to, I don't want to give away I don't wanna give away potential ammunition for what you need and need, but I think it could be a good thing and save court costs. Have you ever
Elizabeth: had some, this is more forensic, have you had people come to you and say, this guy did this evaluation, or did these two evaluations and then have you look at 'em and give an opinion of what you think?
David Amiss: Yeah, for sure. I think sometimes it's, it goes both ways, right? Sometimes there's we're court appointed and we do evaluation for both sides, right? And then both sides hate it. And we're like, oh, it's terrible. And it's how can it be terrible for both? It is . So then one side or the other will go get their own value and retain them to, to attack it and.
Sometimes there are two valuations, and then I think the court could come back there and say we're gonna throw both those out and go with somebody else. Or
Elizabeth: average the two. I think a business evaluations like appraisals on a house, cuz that's the most normal thing we do. Everybody gets their house appraised and it's usually one appraiser.
It does that. We do it through a pretrial order or whatever. But there have been times just like what you say, when the appraiser comes back and it's that can't possibly be right. And then you have somebody else coming and not necessarily, it's different, I guess they go out and do their own appraisal.
But
David Amiss: yeah, I don't wanna make the, what I do sound more complicated cause I feel like that sounds. I think it is more helpful. , there's some ego probably there. I do think that there's more there's nuances into yeah, and there's more potential. Have you looked at all the transactions? If I were to go in and look at every single transaction, I would likely come up with a different financial statement.
So different balance sheet and income statement than what I have. And and that's gonna affect the valuation. And so at the end of the day, a house, this house. Is this many square feet and it's in this condition and I can, it seems a little easier, but I wanna be careful. No, I understand.
I'm trying to tell you why you should pay me money. Yeah.
Joe: appraisals can be all over the map. Like I remember one time I had a guy, he came, he did the inspection, the whole deal, and then one guy had this 24 year old kid and he was like, what do you want it to go for? Oh no, .
David Amiss: That's not
Elizabeth: what I do.
Joe: Weird question to start with,
David Amiss: I think the reality is that there are people out there, there are business appraisers out there that have a little bit of reputation to, you can get a number if you want it. That's
Elizabeth: terrible. No, I don't think that's in any business per se. And.
David Amiss: As long as we can agree to
Elizabeth: hate that
I think we're all aboard with that.
Jenn: That's get do things ethically. Yeah.
Elizabeth: So do you test, so you testify in court, been tendered as an expert, correct?
David Amiss: Actually not yet. Hopefully next week. So there's a lot of training that, that you can potentially do, and I've done that. I observed testimony and and probably one of the strange ones in which I'm looking forward to it and excited about it
Elizabeth: so let's talk about forensics a little bit. I always think of, we think about that at CSI and fingerprints and that kind of thing. Crime scenes. Crime scenes exciting, but it is the same. It's like a crime. I, the thing I love sometimes about my job is digging through credit card statements and bank statements and seeing what you find.
Cuz you can find some crazy stuff in there that people don't realize that you can find.
David Amiss: Yeah, I think so. I think it's fun just digging and asking questions, and answering questions through, through the numbers and a little bit of a scientific method and saying, Hey, look, based on what I see here, this is where I need to go.
And seeing how that traces out. And and it's nice to be validated when you do that right? And finding it and and figuring out, what is what is true, if you will, what is true about these numbers?
Elizabeth: That's neat. And so you have a, we really need folks like you because I don't, this is not my forte and it's not necessarily a court's judge's forte there.
I There's nothing against any judges, but that's not what we're trained in. So when you can dumb it down for us and explain it that way it helps, I think everybody, especially if you've been hired as an expert by the court to do the evaluation, you're the person up there that sort of holds these people's financial status in your hand.
So you wanna make sure that you're doing it correctly.
David Amiss: I think. So going back to the practical example in that small, if you will, marital state, when they have the business and the house, like a big deal. Like the spouse is gonna get the house, are they, and so it's a it's a, I feel the weight and that the weight on my shoulders in that situation.
At the end of the day, the value is what the value is, and it's my job to identify it, right? don't create value, but it's a big deal. And I think to be able to explain things to business owners, to, to attorneys, to whomever Tryer fact is an important thing. And I take satisfaction in being able to do that.
And so
Elizabeth: Even if say, I would hire you to do a business evaluation, you're not advocat. For my client, right?
David Amiss: That's right. So technically I'm I'm an advocate for my value. I think there are certain situations in which I can be hired by you to be a hired gun if you. Let's say the other side got evaluation.
You could hire me and I come in there and be really critical. And then I'm a, I'm an agent, if you will. But if I'm there just to do evaluation I'm supposed to be not necessarily part of the team. But. An ag advocate for the
Elizabeth: value. Just looking at the members and saying, here's what we come up with based on what my experience is.
David Amiss: That's right. That's right. And I'm I'm generally somebody that's, that I'm eager to please others. And so it's it's easy to fall. To follow in that trap of potentially of saying, Hey I'm part of the team and I'm here for you. And I am I do want to help the client to, to cross the divide.
But I also want to maintain as much as I can, and I need to, by the standards that impartiality right as I don't validate invalidate anything that I would say.
Elizabeth: And I think that's what an expert is even if it's a psychologist or if it's doctor or it's you. Derek Ellington, who's doing something for us.
It's all based on your standards because that's, who else, what else can you trust? Is that we're going by what my professional standards say I should do. I think it's
David Amiss: exactly right.
Elizabeth: But it's always, it's just fascinating to me. Yeah. To see what people, one, what people think about you is because if you're the one.
Getting the business. You don't wanna high value. No. If you're the one that's getting half of the value, you want a really high value. So it's hard sometimes to go to a client and say, I'm really sorry, but that's not much gonna happen.
David Amiss: That's right. Then there's all the other, the intricacies and difficulties, right?
The active passive. What have you owned the business before you got married and. And so there's a value at marriage that go and then it increased in value in the marriage. And then so what's that? What's that? Is that increase due to that? The active effort? So one or both of the spouses or passive factors.
And that's probably even more fascinating to me in trying to wrestle and figure that out cuz that's, that can be really
Elizabeth: difficult. And the ones that I've done lately, the questions have, there's always inevitably a question, let's look at what happened prior pre covid and what happened post covid, cause they didn't have any control over that per se.
David Amiss: Yeah. I can remember laying in bed thinking about when covid was happening and things were shutting down. Like, how is this gonna affect valuations and. If we return to the income approach we talked about earlier, at the end of the day when we value a company, we're valuing what are their future possibilities, capabilities, right?
The future benefits and earnings of the company. And if we think that covid is not gonna happen again and that the effects are done and gone. And for some companies, I think they are, right? And so they've returned to their status quo, their norm of what they were before Covid then you can look at a company, I think and just disregard Covid, if you will, right?
But for. It's still going on. They're still building back, if you will, and some won't ever get back. And the, addressing covid, if you will, and giving effects for that appropriately are really difficult and can give rise to differences in evaluations.
Elizabeth: And this is something we never thought of before, that you always have to think of now, like you sing a natural disaster or something like that.
Now it's always, especially we even do that in custody. It's okay, what happens if this happens again in, in custody? So you gotta think about it. Fascinating to me. So
Joe: I have a question I was super curious about. You were talking a minute ago about, let's say the spouse that's hoping that it goes high.
So let's say a wife owns a business and her husband divorces her and she grew the business during the marriage and now it's worth a lot of money and the husband is awarded half of the business after that happens, does he have to do anything?
Elizabeth: Just gets money. Just gets his check,
Joe: And he didn't do anything to.
Elizabeth: Now , I'd be married them, fighting them. Fight words, .
Jenn: But but too point is a great question. Whenever you have some, a client
Elizabeth: that comes to you people say that I'll time about retire. You're entitled to have the retirement too. But North Carolina looks at a, as a marriage, as a team, so that you were able to build that retirement because someone got was at home.
Or doing most of the work so that you could go out and
Joe: work and do that. So is it more like a buyout then? It's like a one time thing and you're done or are you still part of that business?
Elizabeth: No, what I, you wanna, if you're separating your divorce, you need to, some people do stay in, but I always say the court's gonna award it to one party.
They can't give it to both. It's gotta go to one or the other. Gotcha. So they could agree to do anything they wanted to. So it's probably super messy
Joe: when they start a company
Elizabeth: together. Yes. Cause one, they're both, they're both vested in it, so they both want it, but the court can't give somebody half and the other person half, it's gotta go one way or it's like a house.
They can't force it on the market, they gotta give it to one person or the other. Gotcha. But yeah, it seems so, it seems very unfair. I'm there. I, it just doesn't sit right with a lot of people and that kid. I worked my 25 years for my, I guess $500,000 worth of retirement. You're getting half of it.
Wait minute. I guess
Joe: it's no different than a job. If you think about it. One person owns their job and they own the company then, cuz I think it makes sense. If one person earned a lot during the marriage, that doesn't seem unequitable to say Hey, there's a standard of living that you're both doing, right?
. And so split the. But it does feel well,
Elizabeth: it does feel different if you're the person splitting the money. Yeah. I imagine it does , like nobody likes to pay alimony, even though they have to, but yeah,
Joe: it's tough. So it's not necessarily a buyout then, like it can be like, they're still getting money from
Elizabeth: the business.
lot of times if it's a high value business, they don't have. $500,000 sitting in the bank. Sure. So they're gonna make either monthly payments or quarterly payments or X amount of payments by the end of the year. But that's always tricky cuz you could go outta business and all you got as a judgment then you can't, then you're screwed.
Joe: So that persons further ahead just to file bankruptcy and start over. I
Elizabeth: could, I'm out. See, I don't pay you anymore.
Joe: Half million over three years. Cool. Next day. Bankruptcy.
Jenn: David, have you, just random, have you ever had to break someone's heart? They thought that the business was worth X amount, and you're like no, ma'am. Or sir, it is not.
David Amiss: Yeah, I think maybe in this present case they think it's worth a lot. And again, the person that they're like, gosh, they're.
Or in several cases recently, they're depositing $20,000 a month in the bank, and so where's that coming from? I'm like I don't know, but the comp, but the business is only worth this amount. And so I think frequently, if you will, it happens often. That, that difference in, in goodwill, like marital goodwill, or, excuse me, personal goodwill versus versus enterprise. And the business a lot of times is the biggest part of the biggest part outside of the state, of the medical state. A retirement account, a business and a house and those things. That's pretty much it. Things are common and so it's tough, but at the end of the day, if we're, if it's not, if it's not my, if it's not, I'm just putting this number on here, but it's.
I, based on my standards and the approaches and how I've been trained, this is the value. Then I can, it's a little bit easier. A lot easier to say that, but it's still tough. Yeah. We
Elizabeth: deal with the fallout. . Yeah, .
Jenn: And I would imagine that you caution folks just like anything else, not to Google. What is my ex business worth?
Oh
David Amiss: goodness. Yeah. Yeah. There's a rule of thumb. It's 19 times EBIDA or something. Yeah, . Yeah. It's scary. Stay off the internet.
Jenn: Yeah. We get folks that call us too. They I Googled this
great.
Elizabeth: It's or talked my three friends who are going through a separation divorce and his company was, no, not the works
David Amiss: at all.
It's like they, they read a couple articles on Googling and they're an attorney.
Elizabeth: Exactly. So Google,
Jenn: Google, jd, that school existed. That's right.
Joe: I think you can certainly empathize with a spouse that just sees what amount of money comes in and doesn't really know much about the business. So they don't know what the expenses are.
Say the business makes 25 grand a month, but the person running it knows they got $22,000
Elizabeth: of expenses. Expenses. Yeah. You of have to break that too, of, I saw, all this cash was coming at me. Yeah, but they still gotta pay. Yeah. That wasn't ours.
Joe: That's
Elizabeth: right. Or it could be, but then that could be an income.
It might be different from the value of the business and we can say, okay, that's income, so you have to pay more ALI money and your child support. So maybe we can capture both of 'em in some way. Seems a lot messier
Joe: than just having jobs when it comes
Elizabeth: to divorce. . Its, it absolutely
David Amiss: is. I think that goes to Elizabeth question earlier should a spouse or how can they be involved?
And I think they need to be right. I think so too. To arbitrarily say they were depositing $20,000 a month. Should they have been?
Elizabeth: Let's see. Let's look at the bank statement, or at least at the end of the year, sit down with the CPA and go through the books and see what's happening.
David Amiss: I think so. I think so. Take a little bit of responsibility there. I think you need to.
Elizabeth: I agree. And there's always, we talked about this, we always talk about this, we talk about PREMs cause people hate. Have a bad, such a bad rap, but
Jenn: I'm telling you what,
Elizabeth: they can come in handy because you can put in that prenup who's gonna get the business, or it's his, it's husband's separate property and then you don't have to worry about it, people
Jenn: say that, you get in a prenup and you're just advocating for divorce. No you're not, kinda like homeowner's insurance. You don't ever want your house to burn down, but if it happens, sure are happy. When you got that homeowners policy,
Elizabeth: I equate to life insurance.
But that's not,
Jenn: no, everyone is going to die.
Elizabeth: Not everyone is gonna get divorced.
David Amiss: I suspect nobody has said that. Gin on the front end, right? Yeah, .
Jenn: But we've had cases, in fact, we. One right now where the folks came to us and did a prenup with us and life has happened and now they're going their separate ways, but it's a whole lot cleaner and quicker and, know, everybody knows what to expect.
And generally, I would say, I mean it helps with the emotional aspect too, because you are less uncertain of what is happening. That's
Elizabeth: true. That's right. That's right. Yeah. But
Joe: it's the time to do it. You still like each other. Exactly. And you're irrational .
Elizabeth: Joe, you own your own.
Yeah. Does your wife know about your business? Oh yeah. She
Joe: on the spot. Yeah, so she does all the books. So that's, she knows probably more than me,
Elizabeth: Joes asking those questions for him on the other side.
Joe: You guys, I am curious about this like personal question. She won't. Is your wife listening,
So when we filed, like she joined my business, so she quit her job and started her own business and joined mine for simplicity's sake. And she said she got it all done and she was like, yep. So you're like 99% owner and I'm 1%. And I'm like, why did you do it that way?
Shouldn't it be like, you should be 50%? She said, oh, it doesn.
Elizabeth: ? Yes it does. It depends. Have your wife call me .
Jenn: You can also get post notes. I'll tell. I'll
Joe: tell you. I'll tell her. Hey, we were on the divorce show. I brought it up and they said You need to be 50.
Elizabeth: At least.
David Amiss: I don't know that anybody ought to be 50 50.
I think in general, somebody
Elizabeth: needs have one
David Amiss: more percentage. Yeah, that's a. Maybe a bad recipe. Okay. Yes. She
Joe: can
Elizabeth: be 51. Yeah. Like she can make the decisions for the rest of your life. ,
Joe: I don't even know where the mortgages are, like
Elizabeth: she's in charge of that stuff. Okay. This is exhibit A folks and what to do.
Jenn: Thanks Joan. Thanks for that. Not necessarily a financial question related to this, but I just think about. What do you guys see with if it is a spouse that doesn't have ownership, , but works in the business? Let's say your wife didn't own 1%, but she still did your books and you, she still trade her books, then you go through separation.
Do you guys ever see the spouse continue to work in that company or ex
Elizabeth: spouse now? I have not . I think that'd be difficult. I would just be
Jenn: so pissed now I gotta go get a new job too. Great.
David Amiss: Yeah. I think in most of the case they do not continue to work. I think there is a case or two that I can think about where they have, it's a little bit awkward and they just, you do your thing, I'll do my thing.
And the sudden, in some weird way, it all works out. But it's, that's probably not a good idea. Yeah.
Elizabeth: But you gotta be careful cause of it. Cause have case where they did that Kept one loca. She kept one location and he kept one location. He got remarried and then he died . So now we got big mess going on, because, so you know, sep, if you're separated separate, cuz it does, it's gonna get messy at the end of the day is what I can tell you.
And the judge is gonna do it and not, and David's gonna come up and tell you what your business is worth and then the judge is gonna give you half of that or whatever percentage of that your ownership is. But that makes it simple. Yeah. Yeah. , if you have a pre note, ,
David Amiss: I dunno that anything that you ride to simple
Elizabeth: True. True. So how can people get in touch with you if they need you and aren't coming through an
David Amiss: attorney? Yep. Yep. So just give us a call at our office. 9 1 9 8 4 8 1 2 5 9 or you can email me. So d amo. D a m i s and then that c i car Riggs in ingram c cpa.com.
Elizabeth: And it's always not just for people going through divorce. Sometimes you wanna sell your business and you wanna get it valued. It's fun. Yeah.
David Amiss: Yeah. And and I'll provide to you, I have a little checklist if you will series of questions and answers if you will. Do I need evaluation?
Cause I think a lot of times we get that question, do I need evaluation? And. It's hard to answer that, if you will, cuz there, there's so many caveats, but I think there is a little series of question and answers that I'll provide use in anybody listening. Okay. Good contact.
Did you post that for us? Yeah. Yep. And do I need evaluation and hopefully that can be a tool. That'd be great.
Jenn: I have another question, . Sure. Is there a difference? Level of business valuations or what's acceptable in different scenarios, mediation
David Amiss: versus court? Yeah, so our standards allow us to do two types of values.
One is a we'll called a conclusion and one's a calculation. So the conclusion probably sounds more scary or expensive and it's usually more involved and it is usually more expensive. But if we're gonna go to court this is what I need to have. If if I were go to court and be on the other side with Elizabeth, Elizabeth is gonna ask me, what my opinion or my conclusion of value is.
And if I said, I did a calculation, which is something different, and I say I don't have an opinion, then. Probably not gonna go well for me . So yeah. So I need to have an opinion or calculation. You have to have that. If you're going to court for mediation purposes, you can do something called a calculation.
It's it's less in scope, it's gonna be less expensive. It's usually only one approach. And so earlier I talked about that asset, the income and the market approach. And we can agree just to do one. And it can be a good option if you're asking, do I like doing 'em? Probably not. I probably always wanna do a conclusion just cuz I have, for lack of a better word or phrase.
I want the warm and fuzzies knowing I did everything and the value's not gonna change. And I'm gonna put in my. In my calculation report, if I do one, hey if you go to trial and I have to do a conclusion, the value could change. And I do not I just don't like saying that I don't I don't wanna put the attorney in a bad situation for you to go to mediation and say, Hey, this is a value.
Then we go to trial and it's oh, this is the value. Yeah.
Elizabeth: It sounds like any expert, it's like, why would you hire. Like a PhD person to do a custody evaluation without making recommendations or telling the judge what's the best thing to do. Cause that's what you're doing. Cuz the judge doesn't know.
So to me, just go ahead and get the conclusion done. One, even for mediation. Yeah.
David Amiss: I think so. And I think so, but I think there probably are times in which it. The calculation is warranted. And so the conclusion's gonna be, let's just say 15, 18,000 perhaps in the calculation, maybe eight to 10,000.
And there are times in which the calculation may be the way to go for mediation purposes, but I think the best thing to do is go and get a conclusion. Yeah. Yeah. And
Jenn: now are there, we were talking about shady professionals earlier in every industry, so because I've heard some. Folks that own that are like business brokers that have that's their business.
Yeah. And they, but they've come to me and they've said I provide value valuations for mediations, but I can't do whatever the court requires. Yeah. So is there certain qualifications, certifications, things you need to do to be able to do those?
David Amiss: Yeah, so the broker there is probably giving what's called a broker's opinion of value.
I think that's what it's called. But evidently it's not something that their standards allow them to testify on. So I think that's the benefit of using somebody like me that's willing to testify and to go there and to defend the report. Cuz at the end of the day if you can't defend it in court, then
Elizabeth: that's what's the point.
It's, I think of it like if you had an appraiser that would. Like a David testifying. If you have your realtor come in and tell you what they think the market value of your house is, that's more like the broker kind of thing. Gotcha. They couldn't testify in court or they could, but court wouldn't say they're an expert by any.
Yeah. So good question. So tips are, know what's going on. Joe , that's your legal
Jenn: advice, your free legal
Elizabeth: advice for the day. Free legal advice for the day. ,
David Amiss: I think know what's going on. If you think or see something like this is coming down the road, and I think absolutely you need to make sure that you know the CPA or that there is a cpa, good data.
If we don't have good data, then it's hard to do a good evaluation. And getting the trier effect to agree to evaluate. It's gonna be difficult if there's bad data. And and also it's gonna, it's gonna be a lot more expensive Correct. If we have to go round and round on the data.
And so I think it's helpful all around to have a good CPA and feel good about the data and to have a good family law attorney, ,
Elizabeth: oh, can I ask you this? It's like financial advisors too, let's say. I'm not that, I'm not an officer of the company, I'm not a partner. Can you talk to. Can you show me the books without my husband or wiping there to say, it's okay if you're
David Amiss: the non owning spouse and you're the officer.
Elizabeth: I don't have any ownership in it except for my marital portion, let's say. But I'm not employed. I'm not a partner. I'm not an officer.
David Amiss: Yeah, I think I can talk to you about that, but I typically do. Okay. I don't know that I've asked the question before. Can I,
Elizabeth: I think, can you, without the other per, without the owner.
If I came to you and said, Hey, I think, he's cheating on me. I think divorce is coming down the road. I don't know anything about this. You've been our cpa. Show me, what can you tell me about
David Amiss: this business? So in this case, I'm the CPA that's prepare the tax returns. Can I talk to her?
Elizabeth: Yeah.
Like you're the CPA for the
David Amiss: business. Yeah, that's a good question. So if I were CPA for the business, so I'm putting my CPA hat on, not the valuation hat on. I'm sorry, I didn't mean to switch up. No, excuse me. If we're talking about a business and one of the spouses not only, I think we probably should not talk to them which is really difficult But I might wanna reserve judgment to go back and, I can see the standards there. I was just curious. They're technically not an owner.
Elizabeth: Good question.
Anybody got any other questions?
Jenn: Joe, any other questions about your business ownership? It's all clear. Joe. I wish you call your wife and ask her. .
Elizabeth: This has been more fun than I thought. Made this a business evaluation. This has been really entertaining. I must. What were you expecting? I don't know, like numbers crushed.
I don't math. I don't math well, just makes my head hurt, but I had
Joe: no idea how complicated it would be like, and I think I just understand a fraction of it from this conversation.
Elizabeth: We might have to do another one then and break it down, but, yeah. Yeah. Must
David Amiss: have been great.
Yeah. I think a lot of it depends on how clean the data is and how hard it is to get answers, if you gotta go through deposition upon deposition to get answers versus can you just talk to the business? It's super important,
Elizabeth: I
Joe: agree. I feel like if people knew, like if people had a crystal ball and knew like, all right, you're 17, divorce is coming, they would've kept impeccable records.
But I bet that's not what most people do.
David Amiss: I do think that the family law attorney typically, if they're a good one that they caveat . I'll say that because like I've been in court observing other people testify and. And I feel like their attorney like left them hanging out there.
While the while the attorney that, that we were working with was doing cross and they were just getting eat up out there. Not good. And so having a good a family law attorney, you it's, it is really good. And listen to them. Cuz sometimes I feel like the spouses, because it's so emotional cuz they haven't done the prenup, it's so emotional that they just want man, they're like, we're charging for, and The cost.
Do a cause benefit analysis and you're gonna help them
Elizabeth: But at the end of the day, it's their call. I just wish they'd listen to you. That's true. . Gosh. That's what we say to you, .
Jenn: Tell that in podcast. Listen,
Elizabeth: attorney. Listen to Elizabeth. That's right. On that note, I would say that's perfect.
Ain't that some #$(!