So far in this series of articles I have identified the type of family lawyer you need to engage and the importance of the initial steps of compiling a detailed schedule of legal and equitable interests of the husband and wife and also preparing a corporate diagram. Doing those tasks will enable the next step to commence smoothly and that is the valuation of proprietary interests.
It is amazing how many clients and other well-intentioned experts like to tell me what the values of proprietary interests are. In a matrimonial dispute it is extremely important to remember that Uncle John is unlikely to be a qualified forensic accountant capable of valuing a business nor a registered valuer capable of valuing a property development in stage four of 15 stages.
At all times it is necessary, after identifying the relevant proprietary interests, for those interests to be valued properly and independently by an expert.
Expert family lawyers do not simply write a letter of instruction, give it to the valuer and the job is done. Part of the exercise and skills in complex matters is being able to identify what exactly needs to be valued, under what different scenarios and the impact of such valuations in the overall dynamics of the matter.
For instance, if the husband or wife has a minority interest in a company that runs a successful business, then an expert family lawyer would need to recognise that there is likely to be a discount applied to the minority interest holding. However, there is not always a precise answer as to what that discount should be and what factors should influence the application of that discount. Often, in Family Court matters, the evidence that impacts on the discount to be applied is something that falls within the ambit of the Trial Judge’s discretion having regard to the evidence rather than simply the opinion of a forensic accountant. In some situations, for example, it may be wise for the independent expert valuing the minority shareholding to proffer a range of outcomes of discount based on different factual scenarios.
Likewise, in other areas there may be uncertainty within the company constitution or articles of association about the rights that actually attach to various classes of shareholdings and what the current rights and classes are. In those situations the expert family lawyer needs to be able to identify those issues with the valuer and to make sure that the valuer once again proffers various different scenarios based on different interpretations of what the share classes may be and what the holdings may be so that the issue can be properly explored.
It is also important for an expert family lawyer to have a very high level of understanding about the process involved and about the methodologies used in the valuation exercise. Whilst the family lawyer will often not be qualified as a valuer, they need to be able to have the skills and training to identify potential errors or issues that need to be clarified within valuation reports.
For example, registered valuers are often used to independently value residential property, commercial property and in some cases property that is at various stages of development. A good family lawyer needs to have knowledge about the relevant principles applied in the valuation of real estate and, in particular, knowledge and expertise about the various different methodologies and the correct approach to be used in different scenarios.
Whether the property should be valued at its highest and best use and in various different property developments for example, whether a discounted cash flow method of valuation (having regard to the stage of the project and the information and documentation available) is a more preferred approach than simply a current, unimproved value with an uplift factor.
In all situations, no matter how straight forward or complex a piece of real estate is, the expert family lawyer must understand the concepts of valuation of real estate and how it impacts the value. Once a valuation is received, this allows the family law expert to critically examine it and to ask relevant questions under the Family Law Rules and identify any issues.
The same applies to forensic accountant valuations of businesses as a going concern. The expert family lawyer needs to fully understand the various different methodologies that can be applied so as to be able to critically read and assess a valuer’s report. Only then can the expert family lawyer identify issues that may need to be looked into and various questions that may need to be asked.
In complex financial matters there are no shortcuts. Family lawyers who want to involve themselves in this type of work need to have that expertise. Many family lawyers try to practice in this area but do so badly. They try to rely upon senior counsel, accountants and other experts to basically run the file for them. Whilst that can work in some situations, it will inevitably be their downfall. One cannot pretend to have knowledge and continue to delegate to other experts. Eventually the chicken will come home to roost.
It is always important to have a family lawyer who is an expert in these complex matters running your client’s case.
In summary, this introductory part of unravelling complex financial disputes has looked at the following three areas:-
- Choosing the right family lawyer for complex financial disputes;
- Identifying the legal and equitable proprietary interests of the husband and wife in the various entities – the importance of the corporate diagram and detailed schedule of assets and liabilities early; and
- The importance of the commencement of the valuation exercise and the knowledge and expertise required by the family lawyer in relation to the valuation exercise and the role played by the family lawyer in this valuation exercise.
In the next series of articles that will follow I will delve more specifically into individual components of the complex matter in family law and examine more closely relevant case law and particular situations in more detail.
Written by Brett Hartley