The Valuation Date Fight: Why Timing Alone Can Move the Number

Which date a court uses is a legal question. What the business was worth on each candidate date is a financial one, and the two numbers can be far apart.

Why the date matters

Candidate dates in a divorce typically include the date of separation, the date of filing, the date of trial, and the date of the decree. Courts have discretion in many jurisdictions, and the choice can be contested. Confirm with counsel which date your court is likely to use and whether the parties can stipulate.

Businesses do not stand still between those dates:

• Seasonality. An equipment dealer's inventory, floor plan debt, and cash swing with the season. A valuation date at the inventory peak and one at the trough produce different working capital and different net assets.

• One-time events. A large contract won or lost, a manufacturer change, a facility closing, or an insurance recovery can land on one side of a date and not the other.

• Market conditions. Interest rates and industry multiples change, and both feed the discount rate and the market approach.

• Owner effort after separation. Growth that follows the separation raises the active versus passive question covered in article 9.

• Financial reporting. Most small businesses close their books at year end. A mid-year date requires interim statements, and the quality of those statements varies.

The insight: ask for a bridge, not a single date

The most useful exhibit in a contested-date case shows value at each candidate date side by side, with the reasons for the difference: change in earnings, change in market conditions, capital added or withdrawn, and the effect of the owner's effort. A court that decides to use a different date than the one the expert assumed can then pick up the number it needs. A bridge also shows the other side's date choice for what it is, and what it is worth.

Known or knowable

Valuation standards generally limit the analyst to information that was known or reasonably knowable on the valuation date. Events after that date are normally excluded, with narrow exceptions where they confirm a condition that already existed. Hindsight is a common source of disagreement. If one expert uses later results to support a lower or higher number, ask whether the information could have been known on the date.

What to settle early

The valuation date drives the scope of the expert's work, including which financial statements to obtain, whether interim results must be built, and what market data to use. Raising it by motion or stipulation early saves cost and prevents a late change from forcing a new analysis.

Questions to ask your expert

• Which date or dates did you value, and what did you assume the court would use?

• Can you provide value at each candidate date, with a bridge between them?

• Are interim financial statements available for the valuation date, and how reliable are they?

• Was any information used that was not known or knowable on the date?

• What changed between the dates, and how much of the change is due to the owner's effort?