If the appraisal profession is conflicted over the validity of calculation engagements, so are courts. Courts have responded in different ways to questions about the reliability and usefulness of calculation engagements depending on the circumstances of the case. The cases do not offer a bright-line rule that appraisers can follow; acceptance seems to be situational.

In Rohling v. Rohling, an Alabama divorce case that centered on the valuation of the husband’s dental lab, only the wife offered expert testimony from a certified valuation and financial forensics analyst. The expert worked pursuant to a calculation engagement. The trial court rebuffed the husband’s efforts to discredit the testimony, noting the expert was well qualified to provide an opinion based on the requirements of a calculation engagement as well as a valuation engagement and he used “methods recognized and accepted by [the] accounting industry for accountants conducting ‘calculation engagements.’” Importantly, “the Husband did not employ his own expert or pay the increased fee to [the expert] to conduct the more rigorous ‘valuation engagement.’” The appeals court affirmed.

In Surgem, LLC v. Seitz, a 2013 New Jersey appellate ruling on a buyout dispute, the court rejected the defendant expert’s calculation of value. The expert testified that the defendant had not provided the materials necessary to perform a valuation and said “more work should have been done” to prepare a fair valuation of the company. Importantly, the plaintiff offered countervailing expert testimony. The plaintiff’s expert said the opposing expert’s per-share price was an “arbitrary amount” based on unreliable projections. The trial court noted that, by the defense expert’s own account, the work fell far short of an “actual fair valuation of [the company].” Upholding the trial court’s ruling, the appellate court said the lower court had given sound reasons for rejecting the calculation of value.

In contrast, in Hipple v. SCIX, LLC, a 2014 case litigated in federal district court, the former wife sued her ex-husband and his business for fraudulent transfer of the company’s assets and the proceeds of the assets. She offered expert testimony on the value of the company’s  assets. The expert had done a calculation of value, explaining that he had limited information about the company’s financials and therefore was not able to do a full appraisal. The defendants filed a Daubert motion to exclude the testimony, which the court denied. It found the AICPA approved of both calculation and valuation engagements and there was no reason to prevent the trier of fact from hearing the expert’s testimony. The expert explained why he did not perform a full valuation. Questions about the specifics of the testimony went to weight not admissibility, the court decided.

Finally, in A.C. v. J.O., a 2013 New York divorce case, the husband offered a preliminary report from a financial expert who had done valuations of the wife’s professional practice at the beginning of the divorce proceedings, while the wife still cooperated with the expert. The expert explained that he never had been authorized to do work beyond the initial report. Had he prepared a final report, he would have audited the spouses’ books and records to confirm the accuracy of the earlier information. When the wife contested the validity of the preliminary appraisal, saying it was only a “calculation report,” the trial court noted the expert was qualified and his work was preliminary because the wife had decided to stop cooperating. Her uncooperative attitude should be held against her interests, not the husband’s, the court found.

In a noteworthy decision, a Connecticut appellate court recently found the trial court double dipped when it divided the marital assets and calculated spousal support. Although attorneys from both sides had alerted the trial court to the risk of double dipping, the court awarded the non-owner spouse half of the value of the owner’s businesses and then considered all of the income from the businesses in setting the alimony amount.

During the marriage, the husband built two companies that he owned and managed. The businesses provided the only source of income for the husband. The trial court credited the valuation of the wife’s expert, who determined the companies were worth $904,000. The court also found the husband’s gross annual income from the two companies was $550,000. It awarded the husband complete ownership of both businesses and ordered him to pay the wife 50% of their value. In addition, the court granted the wife lifetime alimony of $18,000 per month. This award, the court decided, was not modifiable as to the amount and the duration.

In a post-judgment motion, the husband asked for clarification as to the court’s finding that the husband’s annual income was $550,000 per year. Specifically, he wanted to know whether this amount referred to the husband’s earning capacity. If so, was it earning capacity as to his two wholly owned companies “or what [the husband] can realistically be expected to earn elsewhere independent of said companies?” The court responded the $550,000 was not “a finding of earning capacity, but of (gross) income from [the husband’s businesses].”

On appeal, the husband argued the trial court improperly counted a marital asset twice, for the purpose of property division and the determination of spousal support. The appellate court agreed. “The general principle is that a court may not take an income-producing asset into account in its property division and also award alimony based on that same income,” the reviewing court said. It noted, however, that there was no bright-line rule as to when a court double counted an income-producing asset for marital distribution and support awards. “In marital dissolution cases, each situation is fact specific and the court, in formulating orders, must take into account all of the assets in the marital estate as well as other statutory considerations.”

The appellate court found the trial court failed to consider that the husband’s gross annual income was included in the fair market value of the husband’s two businesses. Awarding the plaintiff alimony and half of the fair market value of the businesses, the trial court “ignored the economic relationship between the value of the businesses and the [husband’s] ability to earn income.” The businesses were “the only significant stream of income by which [the husband] could meet his alimony and other court-ordered payment obligations,” the appellate court pointed out.

The reviewing court remanded “for further proceedings on all financial issues because of impermissible double counting by the [trial] court.”

Oudheusden v. Oudheusden, 190 Conn. App. 169 (May 21, 2019)