Dividing property in a divorce often involves bringing in third-party experts to value complex assets. One of the more complicated assets to value is a private business. Because business valuations can swing the amount of the marital estate hundreds of thousands or millions of dollars in one way versus another, it is crucial to consider the implications of choosing a third-party expert.
Even prior to considering who you are going to hire to complete the valuation, you have to decide whether you want to hire an expert jointly with your spouse (“joint expert”) or whether you want to hire your own expert (“retained expert”). The following is a brief overview of the differences, benefits, and possible risks you should consider when making the decision between joint and retained experts.
The Rules of Civil Procedure in Colorado require parties in a divorce to at least discuss the option of hiring one expert per issue. C.R.C.P. 16.2(g). Because the parties both have an interest in valuing the same property, having only one expert saves on cost. Additionally, communications with a joint expert must be disclosed to all parties, meaning both parties know exactly what information each is providing to the expert. Prior to submitting a final report, a joint expert must submit draft reports to both parties for comment and corrections.
Collaboration can lead to a report that both parties are more likely to find fair. If the parties both agree upon the report, then the report can be received by the court without any further action. Ultimately, one expert that issues a report with which both parties agree saves on cost.
However, having a joint expert can also lead to additional conflict and increased cost. Business valuations tend to be more complex than other types of property valuations, for example, real property. Business valuations in a Colorado divorce also rely heavily on information that must be provided by the parties. Where one party owns and operates a closely-held business, that party will have a better understanding of the data provided and might be in a better position to manipulate that data. Of course, any valuation is only as good as the information provided to the expert.
If a party disagrees with the opinion of the joint expert, he or she is entitled to retain their own experts. C.R.C.P. 16.2(3). (Such expert is often referred to as a “rebuttal expert,” meaning an expert hired to rebut or refute the opinion of another expert). Thus, if the parties do not both agree with the opinion of the joint expert, they may have been better off and reduced conflict by each hiring a retained expert at the outset. In the worst-case scenario, the parties may end up paying for three expert opinions.
It is difficult to predict whether the parties will agree upon the opinion of the joint expert. However, if you already know that you have extreme differences in opinion on the value of the business, you might consider hiring your own expert from the outset.
Unlike a joint expert, a retained expert is exclusively hired by one party or the other. Thus, there is no obligation to include your spouse in communications with the retained expert. Obviously, this may permit a party to speak more candidly and have more control over the opinion. It is important to understand that communications with an expert are, however, not privileged in the same way as communications between you and your attorney, and in some circumstances may be disclosable to the other side.
In some circumstances, you may consider retaining an expert as a “shadow expert.” A shadow expert works for you but may not produce a formal opinion. For example, you may consider hiring a shadow expert to determine if the business is even valuable enough to merit a formal opinion. Or, you may consider a shadow expert to issue an informal opinion to use during a mediation or other settlement negotiations.
Regardless of whether you choose to go the route of joint or retained expert, it is important to adequately disclose the expert’s opinion. Failure to do so can result in the court excluding the expert’s opinion or testimony at a hearing.
The experienced family law team at Kalamaya | Goscha will guide you through the process of expert witness selection and disclosure.