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5
Aug

Real Estate: Albatross in Divorce?

Posted by Brian Vertz Comments Off

Years ago, a wise lawyer published a column in the Pittsburgh Post-Gazette to advise her readers about family law issues (Patricia G. Miller, Esq., “Legal Eagle”). In one of her best-known articles, she described the most common mistakes made by women in divorce cases. (Later she published an article describing men’s most common errors.) Her words, now time-tested, ring even truer today. The most common mistake was sacrificing cash flow to keep the marital residence, becoming “house-poor.”

Pat Miller felt that some women had invested so much time and energy in creating a hospitable environment for the family that they could not bear to part with their life’s work, even though keeping the house would mean sacrificing liquidity and cash flow that they would need to support themselves and maintain their property.

I was reminded of Pat Miller’s article when I read an article recently in the Washington Times. The article, entitled ” The art of selling a home despite a marital split,” noted that real estate has become an albatross in some divorce cases where the value of property has decreased dramatically in the current recession. Properties that once had equity may be under-water in today’s declining real estate market. As a result, a spouse who wants to keep a house may have an asset with negative value. Worse, it may be impossible to refinance a mortgage to relieve the other spouse from the obligation.

A long-term perspective might help to resolve these situations but sometimes there is no choice other than divesting property that has minimal or negative value.  In a tough economic climate, a pragmatic approach must be considered. Sentimentality may be costly.

Category : Pennsylvania | divorce | marital property | Blog
3
Jun

Recession Impact on Value: Known or Knowable?

Posted by Brian Vertz Comments Off

The current economic recession has had a profound adverse impact on many businesses. So, in cases where we are asked to value businesses on a valuation date prior to the recession, how can we ignore what we know will happen? One of my favorite lecturers, Mel Abraham, answered this question in the BVResources newsletter this month by recalling an interaction he had with a California judge a few years ago. In that case, the business had lost its largest (60%) client six months after the valuation date, and Abraham had factored the risk of client loss into his discount rate and DCF calculations. When the judge argued that this was a subsequent event, Abraham agreed but countered, “The loss of the client was definitely a subsequent event, but the risk of losing the client was known and knowable as of the date of valuation.” Looking back to valuation dates, particularly in mid-2008, you cannot include loss of revenues or other damages that actually occurred as the result of this current economic downturn, he added. However, conditions known as of the valuation date (like heavy leverage, declining assets, or other high-risk indicators) could, should, and would have been known or knowable even prior to the stock market meltdown.

Category : FMV | business valuation | discounts | normalization | Blog