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In a recent California decision, Marriage of Fry, the California Court of Appeals affirmed the trial court’s decision to accept the business valuation offered by a joint expert who estimated the owner’s excess earnings by examining the owner’s expenditures and lifestyle. The trial court found, and the appeals court confirmed, that the business owner had negligently or intentionally failed to keep business records, making it impossible to calculate the actual profits of the business. Instead, the joint expert reviewed the owner’s expenditures and lifestyle, and then subtracted a reasonable owners’ salary to calculate excess earnings. To bolster the opinion of value, the owners’ wife offered testimony from two business brokers, who applied rules of thumb to arrive at a similar result. The appellate opinion contains language suggesting that the court was looking at personal goodwill, but no ruling was made on that issue.
Opinion available on Westlaw (2006 WL 2686634)
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