Active Passive appreciation in separate property value is often the largest valuation dispute.
This panel presentation is useful for family law and forensic practitioners in the legal and valuation communities.
Look forward to your comments and observations/experiences.
I would like to offer some pro bono help.
When you come across a case, where a determination of passive appreciation of separate property would be appropriate, I may be able to help as a part of my research project on economic determinants of change in asset values.
Looking forward to hearing from you in the new year.
Best regards and wishes
Ashok Abbott Ph.D.
“Những thách thức về Quy chế tài chính thời kỳ hậu khủng hoảng kinh tế” là nghiên cứu Giáo sư Ania Zalewska, Đại học Bath, Anh Quốc, mang tới hội nghị VEAM (Vietnam Economist Annual Meeting ) 2015
"Challenges of financial regulation in the post crisis world" is the study Prof. Ania Zalewska, Bath University, UK, brought to VEAM 2015.
Để biết thêm chi tiết về các hoạt động và nghiên cứu của DEPOCEN truy cập
Website: http://depocen.org/vn/
LinkedIn: http://linkd.in/1GnHrHB
Facebook: DEPOCEN
FMC's unfairness towards FTIL-NSEL mergerPurab Gandhi
FMC has been unfair to NSEL in the NSEL crisis. They have also shown a continuous inclination towards the FTIL-NSEL merger which may not be in the best interest of all parties of FTIL and NSEL
Family Limited Partnerships (FLPs) are a type of partnership designed to centralize family business or investment accounts. FLPs pool family assets into a single partnership that family members own shares of. FLPs are commonly used for estate tax minimization by gifting shares between generations at lower tax rates than transferring the partnership's holdings. An FLP differs from a trust in that family members own a share of a business rather than assets being held in trust.
Re-regulation in the aftermath of the financial crisisTUAC
The document discusses the causes of the 2008 financial crisis and calls for re-regulation of the financial industry. It notes that the crisis was caused by an unsustainable growth model, risky structured finance products, lack of oversight of banks and shadow banking, and short-term corporate behavior. It argues that re-regulation should strengthen financial safeguards, ensure cooperation internationally, and spread responsibility throughout the investment industry to prevent future crises.
Property settlement following marriage or relationship breakdownWilliam Sloan
This document discusses the process for determining the alteration of property interests between parties in the Family Court following separation. It begins by outlining the applicable legislation for married and de facto couples. The process involves four steps: 1) identifying assets and liabilities, 2) assessing each party's contributions, 3) considering adjustment factors, and 4) ensuring the overall result is just and equitable. Contributions can include both financial and non-financial contributions to the relationship or family. Adjustment factors allow the court to consider things like age, health, parenting responsibilities, and length of the relationship.
The document discusses establishing an investment policy for West Chester Borough. It recommends seeking council direction to revise current policies based on best practices. This includes creating a formal policy to structure investments according to law, properly collateralize funds, and provide good reporting to council. Future discussions may explore pensions and creating an investment committee.
The document summarizes a presentation about establishing a public bank in Philadelphia using existing government funds. It discusses how Comprehensive Annual Financial Reports show all government assets and accumulated wealth, not just annual budgets. Currently, Philadelphia raises money through taxes, investments, and issuing bonds at interest rates of 2-5%. The presentation argues the city could create credit itself and receive dividends from a public bank. It provides an example of North Dakota's public bank. The document reviews Philadelphia's pension fund investments and risks, including foreign currency exposure and securities lending. It questions the safety and prudence of hedge fund investments, which often underperform with high fees.
“Những thách thức về Quy chế tài chính thời kỳ hậu khủng hoảng kinh tế” là nghiên cứu Giáo sư Ania Zalewska, Đại học Bath, Anh Quốc, mang tới hội nghị VEAM (Vietnam Economist Annual Meeting ) 2015
"Challenges of financial regulation in the post crisis world" is the study Prof. Ania Zalewska, Bath University, UK, brought to VEAM 2015.
Để biết thêm chi tiết về các hoạt động và nghiên cứu của DEPOCEN truy cập
Website: http://depocen.org/vn/
LinkedIn: http://linkd.in/1GnHrHB
Facebook: DEPOCEN
FMC's unfairness towards FTIL-NSEL mergerPurab Gandhi
FMC has been unfair to NSEL in the NSEL crisis. They have also shown a continuous inclination towards the FTIL-NSEL merger which may not be in the best interest of all parties of FTIL and NSEL
Family Limited Partnerships (FLPs) are a type of partnership designed to centralize family business or investment accounts. FLPs pool family assets into a single partnership that family members own shares of. FLPs are commonly used for estate tax minimization by gifting shares between generations at lower tax rates than transferring the partnership's holdings. An FLP differs from a trust in that family members own a share of a business rather than assets being held in trust.
Re-regulation in the aftermath of the financial crisisTUAC
The document discusses the causes of the 2008 financial crisis and calls for re-regulation of the financial industry. It notes that the crisis was caused by an unsustainable growth model, risky structured finance products, lack of oversight of banks and shadow banking, and short-term corporate behavior. It argues that re-regulation should strengthen financial safeguards, ensure cooperation internationally, and spread responsibility throughout the investment industry to prevent future crises.
Property settlement following marriage or relationship breakdownWilliam Sloan
This document discusses the process for determining the alteration of property interests between parties in the Family Court following separation. It begins by outlining the applicable legislation for married and de facto couples. The process involves four steps: 1) identifying assets and liabilities, 2) assessing each party's contributions, 3) considering adjustment factors, and 4) ensuring the overall result is just and equitable. Contributions can include both financial and non-financial contributions to the relationship or family. Adjustment factors allow the court to consider things like age, health, parenting responsibilities, and length of the relationship.
The document discusses establishing an investment policy for West Chester Borough. It recommends seeking council direction to revise current policies based on best practices. This includes creating a formal policy to structure investments according to law, properly collateralize funds, and provide good reporting to council. Future discussions may explore pensions and creating an investment committee.
The document summarizes a presentation about establishing a public bank in Philadelphia using existing government funds. It discusses how Comprehensive Annual Financial Reports show all government assets and accumulated wealth, not just annual budgets. Currently, Philadelphia raises money through taxes, investments, and issuing bonds at interest rates of 2-5%. The presentation argues the city could create credit itself and receive dividends from a public bank. It provides an example of North Dakota's public bank. The document reviews Philadelphia's pension fund investments and risks, including foreign currency exposure and securities lending. It questions the safety and prudence of hedge fund investments, which often underperform with high fees.
There are many misconceptions about how divorce property settlements are determined. Is it 50% / 50%? Are pre-existing assets included? What if one spouse has a significantly higher income? What about the inclusion of a family trust?
In this 'Back to Basics' presentation all these questions and more will be answered in easy to understand and practical terms. This overview will help you, better help your client.
As soon as businesses decide to merge, the respective legal teams from each entity must immediately mobilize and accurately deploy a merger plan that addresses everything from due diligence to the final filings. Any missed steps can incur serious costs or cause adverse delays.
Unclaimed Property – History, Audit Trends and Legislative Developments - Presentation delivered by Mike Stehly, Vice President, Tax, US Foods, Inc. at the marcus evans Tax Officers Summit Nov 13-15 2014, Las Vegas, NV
How is Property Divided after Divorce in California 2023.pdfHamdy Abdelgawad
Divorce is a deeply emotional journey that encompasses not just the separation of two individuals but also the intricate division of their shared assets and debts. Within this process, property division takes center stage as it determines the allocation of the couple's belongings, investments, and debts. In California, property division follows the guiding principles of community property laws. To navigate the complexities of this process, it is crucial to have a comprehensive understanding of these laws and the steps involved. Seeking the guidance of a skilled can provide invaluable assistance in achieving a fair and satisfactory resolution. They possess the expertise necessary to protect your rights and advocate for your best interests throughout the property division process.
Defending Against Bankruptcy Avoidance Actions (Series: Complex Financial Lit...Financial Poise
In the event of a bankruptcy, the debtor or trustee may opt to take legal action in order to recover money or property that was transferred by the debtor prior to going bankrupt. These actions, whereby such transfers are effectively reversed, are referred to as “avoidance actions.” In this webinar, the expert panel discusses the applicable provisions of the Bankruptcy Code, common avoidance actions, and key considerations when planning for and defending against these actions.
To view the accompanying webinar, go to: https://www.financialpoise.com/financial-poise-webinars/defending-against-bankruptcy-avoidance-actions-2021/
In the event of a bankruptcy, the debtor or trustee may opt to take legal action in order to recover money or property that was transferred by the debtor prior to going bankrupt. These actions, whereby such transfers are effectively reversed, are referred to as “avoidance actions.” In this webinar, the expert panel discusses the applicable provisions of the Bankruptcy Code, common avoidance actions, and key considerations when planning for and defending against these actions.
Part of the webinar series: COMPLEX FINANCIAL LITIGATION 2022
See more at https://www.financialpoise.com/webinars/
One of the great misunderstandings is how assets in trusts are dealt with in the Family Court. Are they excluded or are they in?
Asset pools in these cases can be significant, so before you suggest a particular asset-holding structure for a client, it’s important to know what the answer is.
In this webinar for Accountants we look at some case examples and cover the important questions, such as:
- How is property settlement determined?
- What is “property” and what is a “financial resource”?
- What power does the Family Court have to deal with Trusts?
- What, if anything, can be done to remove a Trust from the Court’s reach?
Note: prices shown in the video might not be reflective of our current prices. Please, refer to the website https://www.michaellynchfamilylawyers.com.au for updated information. Thank you.
Current Tax System •Why do we have an income tax, what is the le.docxdorishigh
Current Tax System
• Why do we have an income tax, what is the legal basis, how does congress use tax law?
• What is the audit process utilized by the IRS as part of the administration of tax law?
• What ethical guidelines will apply to you in your tax practice?
Tax Law
• What are the economic, social, equity, and political considerations that justify various aspects of the tax law?
• Describe the role played by the IRS and the courts in the evolution of the federal tax system
• What is the purpose of each of these three sources of tax law: statutory, administrative, and judicial ?
Deductions and Exemptions
• Define all parts of the federal income tax formula
• Arrive at the correct number of personal exemptions
• Apply dependency exemption rules
• Calculate the tax liability
• Determine the correct filing requirement and status for a taxpayer
• Understand basic property transaction rules
Gross Income - Concepts and Inclusions
• Distinguish between the economic, accounting, and tax concepts of gross income
• Determine if a taxpayer should pay the tax on a particular item of income
• Determine if certain items are considered income by applying the Internal Revenue Code rule
Exclusions from Gross Income
After completing this section, you should be able to do the following:
• Identify when to exclude an item from gross income
• Identify when receipts can be excluded under the tax-benefit rule
• Describe when income must be reported from the discharge of indebtedness
Deductions and Losses in General
• Determine the benefit derived from deductions for and from adjusted gross income
• Determine the special rules that apply to the following items: public policy limitations, political activities, excessive executive compensation, investigation of business opportunities, hobby losses, vacation-home rentals, payment of others' expenses, personal expenditures, capital expenditures, related-party transactions, and expenses related to tax-exempt income
Business Expenses
• Determine how to apply a bad debt deduction
• Determine the tax effects of worthless securities, including §1244 stock
• Correctly apply the tax rules for deductible and nondeductible losses of individuals
• Determine the proper application of a casualty loss deduction
• Calculate the domestic production activities deduction
• Determine the effect of the carry back and carryover provisions
Depreciation
• Identify the time periods for the different tax depreciation methods
• Determine the cost recovery under MACRS
• Identify listed property and special rules for them
• Calculate the amortization amount for an intangible asset
Employee Expenses
• List the business and personal expenditures that are deductible either as miscellaneous itemized deductions or as other itemized deductions
• Calculate the moving expense deduction
• Calculate the contribution to a retirement account
• Identify limitations on itemized .
This document discusses different types of business entities and their liability under CERCLA. It covers sole proprietorships, partnerships, joint ventures, corporations and limited liability corporations. For corporations, it describes how they are created, their ownership and management structure, and limitations on shareholder liability. It discusses exceptions where corporate liability can be pierced or direct liability found. It also summarizes how to research a company's corporate history including name changes, mergers and acquisitions, and dissolved entities to determine liability.
How to Handle Complex Assets in an Online Divorce in OntarioBTL Law P.C.
Divorce is a challenging process, and it becomes more intricate when it involves complex assets. In Ontario, handling such assets through an online divorce process requires careful consideration, legal understanding, and strategic planning. Learn More at https://separationagreementontario.ca/
NEWBIE LITIGATOR SCHOOL - 101 Part 3 2022 - Enforcement: Post-Judgment Procee...Financial Poise
Obtaining a final and enforceable judgment is often just the first phase of the civil litigation process; without effective enforcement and collection, a judgment is merely a piece of paper (or electronic docket entry). This webinar provides an overview of the technical, procedural and strategic considerations necessary to monetize judgments and make litigation worthwhile.
Part of the webinar series: NEWBIE LITIGATOR SCHOOL - 101 Part 3 2022
See more at https://www.financialpoise.com/webinars/
This document provides an overview of living trusts, including:
- Living trusts allow beneficiaries and trustees to avoid probate and distribute assets privately after death. They define heirs, trustees, and terms of distribution.
- Revocable living trusts can be changed during the settlor's lifetime, while irrevocable trusts cannot. There are also several sub-types of living trusts.
- Creating a living trust requires defining distribution of assets after death. They provide legal protection for passing ownership of assets.
- Taxation of living trusts depends on whether assets are held or distributed before or after the primary trustee's death. Proper planning is required to minimize taxes.
Mercer Capital's Tennessee Family Law | Q3 2018 | Valuation & Forensic Insigh...Mercer Capital
Mercer Capital is the largest valuation and financial advisory firm in Tennessee with offices in Nashville and Memphis. Complex financial issues are a critical part of many of your client engagements. The focus of this newsletter is to provide useful content about these financial issues from the perspective of financial experts. We seek to help you assist your clients in financial and accounting matters.
CTKnowledgeShare: CT Corporation is dedicated to educating our customers on the most current and essential topics for corporate legal and compliance professionals.
Mercer Capital's Tennessee Family Law | Q1 2019 | Valuation & Forensic Insigh...Mercer Capital
Mercer Capital is the largest valuation and financial advisory firm in Tennessee with offices in Nashville and Memphis. Complex financial issues are a critical part of many of your client engagements. The focus of this newsletter is to provide useful content about these financial issues from the perspective of financial experts. We seek to help you assist your clients in financial and accounting matters.
Presentation delivered by Camille Evans, International Tax Director, Eastman Chemical Company and Tasheaya Warren Ellison, Senior Tax Attorney – Tax Dispute Resolution, Shell Oil Company at the marcus evans Tax Officers Summit 2016 in FL.
It is a common play in real estate to create a separate operating entity to serve as a tenant and execute a lease between the owner of the property and himself. Typically, this happens in assets which serve as a real estate-based business, such as a retail property. The structured enables the operator to reduce the taxable income of the business and also provide a liability shield for the property owner. However, this arrangement can easily lead to some ethical issues, should the property owner become distressed. Where is the line between a savvy real estate strategy and unethical behavior? This webinar presents practice pointers on how to use the ABA Model Rules as a guide to navigating ethical issues in Insider Lease Agreements. Model Rules addressed include those that govern the client-lawyer relationship (Rule 1.7: Conflict of Interest: Current Clients); those that speak to the need for candor toward the tribunal and fairness to an opposing party and counsel (Rule 3.3 through 3.4); and the necessity for truthfulness in statements to others and issues surrounding unrepresented persons (i.e. Rule 4.3).
Part of the webinar series: ETHICAL ISSUES IN REAL ESTATE-BASED BANKRUPTCIES 2022
See more at https://www.financialpoise.com/webinars/
1Chapter 4 Assets, Liabilities, and Net Worth.docxaulasnilda
This document discusses assets, liabilities, and net worth which are key terms in finance. Assets are economic resources that provide future benefits, like cash, inventory, and equipment. Liabilities are economic obligations or debts owed to outsiders like accounts payable or loans. Net worth represents the remaining value that belongs to the owners and is called owners' equity for sole proprietorships or partnerships and capital stock and retained earnings for corporations. The accounting equation shows that assets equal liabilities plus net worth. Understanding how these terms fit together is important for financial reporting.
Apportioning active and passive appreciation in divorce.
Passive appreciation is claimed, active appreciation is conceded.
We present the essentials of this analysis as this can a substantial difference in sharing of the marital estate in a divorce.
1) Gray divorces refer to divorces among older, wealthier couples in long-term marriages as the divorce rate has doubled for those over 50 years old. These divorces present challenges for courts dealing with equitable distribution of substantial marital assets that may include inherited wealth or business interests.
2) A core issue is appropriately allocating growth in the value of businesses between active contributions from spousal efforts versus passive contributions from economic factors outside their control like market conditions.
3) The document proposes a method for empirically estimating the relative impact of passive economic factors on growth in business value to help courts make this allocation in gray divorce property distributions.
More Related Content
Similar to 2018 asa conference active passive appreciation presentation
There are many misconceptions about how divorce property settlements are determined. Is it 50% / 50%? Are pre-existing assets included? What if one spouse has a significantly higher income? What about the inclusion of a family trust?
In this 'Back to Basics' presentation all these questions and more will be answered in easy to understand and practical terms. This overview will help you, better help your client.
As soon as businesses decide to merge, the respective legal teams from each entity must immediately mobilize and accurately deploy a merger plan that addresses everything from due diligence to the final filings. Any missed steps can incur serious costs or cause adverse delays.
Unclaimed Property – History, Audit Trends and Legislative Developments - Presentation delivered by Mike Stehly, Vice President, Tax, US Foods, Inc. at the marcus evans Tax Officers Summit Nov 13-15 2014, Las Vegas, NV
How is Property Divided after Divorce in California 2023.pdfHamdy Abdelgawad
Divorce is a deeply emotional journey that encompasses not just the separation of two individuals but also the intricate division of their shared assets and debts. Within this process, property division takes center stage as it determines the allocation of the couple's belongings, investments, and debts. In California, property division follows the guiding principles of community property laws. To navigate the complexities of this process, it is crucial to have a comprehensive understanding of these laws and the steps involved. Seeking the guidance of a skilled can provide invaluable assistance in achieving a fair and satisfactory resolution. They possess the expertise necessary to protect your rights and advocate for your best interests throughout the property division process.
Defending Against Bankruptcy Avoidance Actions (Series: Complex Financial Lit...Financial Poise
In the event of a bankruptcy, the debtor or trustee may opt to take legal action in order to recover money or property that was transferred by the debtor prior to going bankrupt. These actions, whereby such transfers are effectively reversed, are referred to as “avoidance actions.” In this webinar, the expert panel discusses the applicable provisions of the Bankruptcy Code, common avoidance actions, and key considerations when planning for and defending against these actions.
To view the accompanying webinar, go to: https://www.financialpoise.com/financial-poise-webinars/defending-against-bankruptcy-avoidance-actions-2021/
In the event of a bankruptcy, the debtor or trustee may opt to take legal action in order to recover money or property that was transferred by the debtor prior to going bankrupt. These actions, whereby such transfers are effectively reversed, are referred to as “avoidance actions.” In this webinar, the expert panel discusses the applicable provisions of the Bankruptcy Code, common avoidance actions, and key considerations when planning for and defending against these actions.
Part of the webinar series: COMPLEX FINANCIAL LITIGATION 2022
See more at https://www.financialpoise.com/webinars/
One of the great misunderstandings is how assets in trusts are dealt with in the Family Court. Are they excluded or are they in?
Asset pools in these cases can be significant, so before you suggest a particular asset-holding structure for a client, it’s important to know what the answer is.
In this webinar for Accountants we look at some case examples and cover the important questions, such as:
- How is property settlement determined?
- What is “property” and what is a “financial resource”?
- What power does the Family Court have to deal with Trusts?
- What, if anything, can be done to remove a Trust from the Court’s reach?
Note: prices shown in the video might not be reflective of our current prices. Please, refer to the website https://www.michaellynchfamilylawyers.com.au for updated information. Thank you.
Current Tax System •Why do we have an income tax, what is the le.docxdorishigh
Current Tax System
• Why do we have an income tax, what is the legal basis, how does congress use tax law?
• What is the audit process utilized by the IRS as part of the administration of tax law?
• What ethical guidelines will apply to you in your tax practice?
Tax Law
• What are the economic, social, equity, and political considerations that justify various aspects of the tax law?
• Describe the role played by the IRS and the courts in the evolution of the federal tax system
• What is the purpose of each of these three sources of tax law: statutory, administrative, and judicial ?
Deductions and Exemptions
• Define all parts of the federal income tax formula
• Arrive at the correct number of personal exemptions
• Apply dependency exemption rules
• Calculate the tax liability
• Determine the correct filing requirement and status for a taxpayer
• Understand basic property transaction rules
Gross Income - Concepts and Inclusions
• Distinguish between the economic, accounting, and tax concepts of gross income
• Determine if a taxpayer should pay the tax on a particular item of income
• Determine if certain items are considered income by applying the Internal Revenue Code rule
Exclusions from Gross Income
After completing this section, you should be able to do the following:
• Identify when to exclude an item from gross income
• Identify when receipts can be excluded under the tax-benefit rule
• Describe when income must be reported from the discharge of indebtedness
Deductions and Losses in General
• Determine the benefit derived from deductions for and from adjusted gross income
• Determine the special rules that apply to the following items: public policy limitations, political activities, excessive executive compensation, investigation of business opportunities, hobby losses, vacation-home rentals, payment of others' expenses, personal expenditures, capital expenditures, related-party transactions, and expenses related to tax-exempt income
Business Expenses
• Determine how to apply a bad debt deduction
• Determine the tax effects of worthless securities, including §1244 stock
• Correctly apply the tax rules for deductible and nondeductible losses of individuals
• Determine the proper application of a casualty loss deduction
• Calculate the domestic production activities deduction
• Determine the effect of the carry back and carryover provisions
Depreciation
• Identify the time periods for the different tax depreciation methods
• Determine the cost recovery under MACRS
• Identify listed property and special rules for them
• Calculate the amortization amount for an intangible asset
Employee Expenses
• List the business and personal expenditures that are deductible either as miscellaneous itemized deductions or as other itemized deductions
• Calculate the moving expense deduction
• Calculate the contribution to a retirement account
• Identify limitations on itemized .
This document discusses different types of business entities and their liability under CERCLA. It covers sole proprietorships, partnerships, joint ventures, corporations and limited liability corporations. For corporations, it describes how they are created, their ownership and management structure, and limitations on shareholder liability. It discusses exceptions where corporate liability can be pierced or direct liability found. It also summarizes how to research a company's corporate history including name changes, mergers and acquisitions, and dissolved entities to determine liability.
How to Handle Complex Assets in an Online Divorce in OntarioBTL Law P.C.
Divorce is a challenging process, and it becomes more intricate when it involves complex assets. In Ontario, handling such assets through an online divorce process requires careful consideration, legal understanding, and strategic planning. Learn More at https://separationagreementontario.ca/
NEWBIE LITIGATOR SCHOOL - 101 Part 3 2022 - Enforcement: Post-Judgment Procee...Financial Poise
Obtaining a final and enforceable judgment is often just the first phase of the civil litigation process; without effective enforcement and collection, a judgment is merely a piece of paper (or electronic docket entry). This webinar provides an overview of the technical, procedural and strategic considerations necessary to monetize judgments and make litigation worthwhile.
Part of the webinar series: NEWBIE LITIGATOR SCHOOL - 101 Part 3 2022
See more at https://www.financialpoise.com/webinars/
This document provides an overview of living trusts, including:
- Living trusts allow beneficiaries and trustees to avoid probate and distribute assets privately after death. They define heirs, trustees, and terms of distribution.
- Revocable living trusts can be changed during the settlor's lifetime, while irrevocable trusts cannot. There are also several sub-types of living trusts.
- Creating a living trust requires defining distribution of assets after death. They provide legal protection for passing ownership of assets.
- Taxation of living trusts depends on whether assets are held or distributed before or after the primary trustee's death. Proper planning is required to minimize taxes.
Mercer Capital's Tennessee Family Law | Q3 2018 | Valuation & Forensic Insigh...Mercer Capital
Mercer Capital is the largest valuation and financial advisory firm in Tennessee with offices in Nashville and Memphis. Complex financial issues are a critical part of many of your client engagements. The focus of this newsletter is to provide useful content about these financial issues from the perspective of financial experts. We seek to help you assist your clients in financial and accounting matters.
CTKnowledgeShare: CT Corporation is dedicated to educating our customers on the most current and essential topics for corporate legal and compliance professionals.
Mercer Capital's Tennessee Family Law | Q1 2019 | Valuation & Forensic Insigh...Mercer Capital
Mercer Capital is the largest valuation and financial advisory firm in Tennessee with offices in Nashville and Memphis. Complex financial issues are a critical part of many of your client engagements. The focus of this newsletter is to provide useful content about these financial issues from the perspective of financial experts. We seek to help you assist your clients in financial and accounting matters.
Presentation delivered by Camille Evans, International Tax Director, Eastman Chemical Company and Tasheaya Warren Ellison, Senior Tax Attorney – Tax Dispute Resolution, Shell Oil Company at the marcus evans Tax Officers Summit 2016 in FL.
It is a common play in real estate to create a separate operating entity to serve as a tenant and execute a lease between the owner of the property and himself. Typically, this happens in assets which serve as a real estate-based business, such as a retail property. The structured enables the operator to reduce the taxable income of the business and also provide a liability shield for the property owner. However, this arrangement can easily lead to some ethical issues, should the property owner become distressed. Where is the line between a savvy real estate strategy and unethical behavior? This webinar presents practice pointers on how to use the ABA Model Rules as a guide to navigating ethical issues in Insider Lease Agreements. Model Rules addressed include those that govern the client-lawyer relationship (Rule 1.7: Conflict of Interest: Current Clients); those that speak to the need for candor toward the tribunal and fairness to an opposing party and counsel (Rule 3.3 through 3.4); and the necessity for truthfulness in statements to others and issues surrounding unrepresented persons (i.e. Rule 4.3).
Part of the webinar series: ETHICAL ISSUES IN REAL ESTATE-BASED BANKRUPTCIES 2022
See more at https://www.financialpoise.com/webinars/
1Chapter 4 Assets, Liabilities, and Net Worth.docxaulasnilda
This document discusses assets, liabilities, and net worth which are key terms in finance. Assets are economic resources that provide future benefits, like cash, inventory, and equipment. Liabilities are economic obligations or debts owed to outsiders like accounts payable or loans. Net worth represents the remaining value that belongs to the owners and is called owners' equity for sole proprietorships or partnerships and capital stock and retained earnings for corporations. The accounting equation shows that assets equal liabilities plus net worth. Understanding how these terms fit together is important for financial reporting.
Similar to 2018 asa conference active passive appreciation presentation (20)
Apportioning active and passive appreciation in divorce.
Passive appreciation is claimed, active appreciation is conceded.
We present the essentials of this analysis as this can a substantial difference in sharing of the marital estate in a divorce.
1) Gray divorces refer to divorces among older, wealthier couples in long-term marriages as the divorce rate has doubled for those over 50 years old. These divorces present challenges for courts dealing with equitable distribution of substantial marital assets that may include inherited wealth or business interests.
2) A core issue is appropriately allocating growth in the value of businesses between active contributions from spousal efforts versus passive contributions from economic factors outside their control like market conditions.
3) The document proposes a method for empirically estimating the relative impact of passive economic factors on growth in business value to help courts make this allocation in gray divorce property distributions.
- Professor Ashok Bhardwaj Abbott is an associate professor of finance at West Virginia University who has published extensively on business valuation.
- His research focuses on appropriate levels of discounts/premiums for liquidity, marketability, and control attributes in business appraisals.
- He has consulted for major valuation firms and served as an expert witness for 15 years.
Does Liquidity Masquerade As Size FinalAshok_Abbott
he empirical results presented in this paper suggest a strong role for liquidity in explaining higher raw and excess returns realized by investors in less liquid stocks. Size effect has been studied extensively and it has been suggested that it may be a proxy for another unobserved factor. Our results strongly suggest that liquidity may be that unobserved factor explaining a large part but not all of the size premium.
This document summarizes and compares several quantitative models for estimating discounts for lack of marketability (DLOM) and liquidity. It defines key concepts like marketability, liquidity, and degrees of marketability. It then describes several DLOM models including the QMDM, Silber, Bajaj, Abbott, Tabak, Meulbroek, and option-based models like Black-Scholes put, average price Asian put, and lookback put. The document estimates potential DLOM discounts under different volatility and time assumptions using these models for comparative analysis.
The document discusses liquidity assumptions in finance and their implications for security pricing and valuation. It notes that while finance literature recognizes several dimensions of liquidity, the core issue is the immediacy assumption that market orders have immediate execution, which is not always realistic. Research shows liquid securities have significantly higher returns than illiquid ones, demonstrating the effect of liquidity on pricing. The document also discusses liquidity risk, modeling liquidity risk as a function of trade size and price impact, and the challenges in measuring liquidity and volatility for valuation purposes.
Best Competitive Marble Pricing in Dubai - ☎ 9928909666Stone Art Hub
Stone Art Hub offers the best competitive Marble Pricing in Dubai, ensuring affordability without compromising quality. With a wide range of exquisite marble options to choose from, you can enhance your spaces with elegance and sophistication. For inquiries or orders, contact us at ☎ 9928909666. Experience luxury at unbeatable prices.
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2018 asa conference active passive appreciation presentation
1. ACTIVE PASSIVE APPRECIATION – CURRENT UPDATE
Z. Christopher Mercer
Mercer Capital
Ashok Abbot
West Virginia University
Jay Fishman
Financial Research Associates
Bill Dameworth
Forensic Strategic Solutions
3. Active Passive Appreciation Analysis – Definition
An active passive analysis (“APA”) is a valuation exercise that must be
undertaken in divorce cases in certain jurisdictions to determine:
4. Active Passive Appreciation Analysis – Definition
• Whether a change in value occurred in certain assets and liabilities during a defined period of time
(e.g. during a marriage).
• The change can be either an increase or decrease.
• The quantification of the magnitude of the change in value.
• The identification of the factors that caused the change in value, and the quantification of the
relative contribution to the change in value of each factor.
6. Active Passive Appreciation Analysis – Driven by
Divorce Statute and Case Law
APA especially requires close coordination between the appraiser and the attorney due
to jurisdictional differences (reflected in both statutory and case law).
• In actuality, APA arose almost exclusively due the need for divorcing parties to comply with marital
divorce statute and/or case law.
• APA largely arose because of divorce litigation.
• The required APA analytical steps, assumptions, methodologies, parameters and conclusions can
vary dramatically depending on jurisdictional statute and/or case law.
7. Active Passive Appreciation Analysis – Driven by
Divorce Statute and Case Law
Two primary categories of jurisdictional differences that impact APA analyses are
community property (“CP”) rules and equitable distribution (“ED”) rules.
• Certain states have adopted community property (“CP”) rules as the system of dividing assets in a
divorce.
• Nine (9) states apply CP rules to determining ownership of assets in contexts such as estate
administration, ownership during a marriage, and ownership at divorce
• According to Turner, only 8 of the CP states apply CP rules to determine ownership in a divorce.
9. Active Passive Appreciation Analysis – Driven by
Divorce Statute and Case Law
• Generally, with CP:
• Assets and liabilities that either spouse acquired during a marriage (irrespective of how the asset or
liability is titled) are, with certain exceptions, split 50/50 among the divorcing spouses.
• Effectively, assets acquired during the marriage are deemed to be owned by a separate legal entity
– the Marital Community- for divorce purposes, rather than by the individual spouses.
• Irrespective of how the asset or liability is titled, though there are certain exceptions.
• Irrespective of the source of funds used to acquire the asset, though there are certain
exceptions.
• A concept called Equitable Apportionment and Reimbursement applies in some CP states to
recognize and adjust where the community has been actively involved in a pre-marital
business.
• Property brought into a marriage or inherited or gifted to a spouse by a third party during the
marriage, with certain exceptions, typically remains separate property.
10. Active Passive Appreciation Analysis – Driven by
Divorce Statute and Case Law
• The majority of states have adopted equitable distribution (“ED”) rules as the system of dividing
assets in a divorce.
• The balance of states that are not CP states have generally adopted ED rules, though there is substantial
variation among those states.
• Typically, under an ED system:
• A wider pool of assets owned by the divorcing parties can be accessed to provide a marital
settlement.
• The division of those assets is done “equitably”, and in most jurisdictions, equal is not necessary
equitable.
• Unlike CP states, where assets and liabilities acquired during a marriage are legally deemed to be
owned by the Marital Community, marital property rights in assets and liabilities under an ED state
(regardless of how they are titled) are initially unvested until a divorce complaint is filed.
• At the point of filing, marital property rights vest and property is equitable divided.
11. Active Passive Appreciation Analysis – Driven by
Divorce Statute and Case Law
• Significant variations nonetheless exist among various ED states, though the different ED states typically
fall in one of two following distinctions:
• All Property ED Model
• Turner identifies the Massachusetts ED statute as illustrative of an All Property ED state:
• “Upon divorce…the court may assign to either husband or wife all or part of the estate of
the other…”.
• There is no distinction between different types of property (e.g. marital or separate), and no
distinction between when an asset or liability was acquired or how it was acquired.
• However, Turner reports that every all-property system includes contributions to
acquisition as an equitable distribution factor.
• Turner believes that there are currently 15 All Property ED states, although there are variations
within.
13. Active Passive Appreciation Analysis – Driven by
Divorce Statute and Case Law
• Dual Classification ED Model
• Unlike an All Property ED model, under a Dual Classification ED model, asset and liability
classification must occur. The initial division process begins by classifying the parties’ assets as
either marital or separate property.
• Separate property is divided according to legal title., though there are exceptions.
• Marital property is divided equitably.
• Turner believes that there are currently 28 Dual Classification ED states, although there are
variations within.
• Turner notes the following: “Classification can be a difficult process, as the definitions of
marital and separate property must be applied to an almost infinite variety of fact patterns.”
15. Active Passive Appreciation Analysis – Driven by
Divorce Statute and Case Law
• The APA is typically required in the 28 Dual Classification states to assist the parties and the court in the
classification process.
• The APA typically requires the following steps:
• The valuation of assets and liabilities at different points in time.
• The determination of the magnitude of the changes in value of assets and liabilities.
• The identification of factors that caused the changes in values of assets and liabilities.
• The quantification of the impact on the value changes of each of the identified factors.
16. Active Passive Appreciation Analysis – Driven by
Divorce Statute and Case Law
• In Dual Classification ED States
• Changes in the value of marital assets and liabilities during the marriage are divisible,
regardless of the reason for the change.
• While separate assets and liabilities typically remain separate assets, the classification of
changes in the value during the marriage of otherwise separate assets and liabilities depends
upon the facts.
• Active Appreciation/Depreciation - changes in separate asset and liability values during
the marriage due to the efforts or funds of one of the divorcing spouses.
• These changes are typically divisible
17. Active Passive Appreciation Analysis – Driven by
Divorce Statute and Case Law
• Passive Appreciation/Depreciation - changes in separate asset and liability values during
the marriage caused by factors OTHER than the efforts or funds of one of the divorcing
spouses.
• Depending on the jurisdiction, can include inflation, government regulatory changes,
market forces, contributions of third party management (not the divorcing parties).
• A common attribute that typically must accompany passive factors is that variations
in the factors are outside of the control of the management of a company.
• Changes caused by passive factors typically remain separate property.
18. Active Passive Appreciation Analysis – Driven by
Divorce Statute and Case Law
• Active Passive Appreciation/Depreciation Post DOS – recognize that changes in asset and
liability values between the DOS and the Date of Distribution (“DOD”) in ED states are
handled the opposite than pre-DOS.
• Changes in marital property post DOS caused by active efforts typically remain
separate.
• Changes in marital property post DOS caused by passive factors typically are
divisible.
20. Example Company
Simplifying Assumptions
• The Rate and Flow Analysis can be complex, so only a small segment is used in this
presentation to illustrate an APA example.
• See Rate and Flow Analysis by Chris Mercer for a description of the application of
the full Rate and Flow Analysis and the underlying assumptions.
21. The Question
• Date of Marriage (“DOM”) : January 1, 1995
• DOM Value = $8.2 million
• Date of Separation (“DOS”) : January 1, 2005
• DOS Value = $31.7 million
• What portion of the $23.5 million of appreciation in Example Company can
reasonably be allocated to the active efforts of the owner, and what portion
should reasonably be allocated to external, or passive, factors?
22. Value at Date of Marriage
DCF Valuation
TABLE 1 Exhibit LE 1 Ex. LE 1 LE 1
THE COMPANY 12/31/1994
VALUATION ANALYSIS AS OF JANUARY 1, 1995 6/30/1995
For the Fiscal Years Ended December 31 Terminal
Derivation of Cash Flow 1995 1996 1997 1998 1999 Value
= Cash Flows to Equity $1,500,000 1,605,000 1,717,350 1,837,565 1,966,194 $10,027,589
Discounting Periods 0.50 1.50 2.50 3.50 4.50 5.00
Present Value Factors 0.8927 0.7100 0.5647 0.4491 0.3572 0.3183
Present Value of Cash Flows 1,339,050 1,139,550 969,788 825,250 702,325 3,191,782
Indicated Value $8,168,000 (Rounded)
Long-Term Government Bond Yield-to-Maturity (1995) 7.73% Projected Terminal Year Net Income $1,966,194
Ibbotson Common Stock Premium 6.50% x Terminal Capitalization Factor 5.10
x Market Beta 1.00 = Total Estimated Terminal Value $10,027,589
= Beta Adjusted Common Stock Premium 6.50%
+ Small Capitalization Stock Premium 3.50%
= Total Equity Premium 10.00%
+ Company Risk Premium 8.00%
= Discount Rate (Required Rate of Return) 25.73%
- Sustainable Growth in Earning Power (at end of projection) -6.00%
= Terminal Capitalization Rate 19.73%
Terminal Capitalization Factor (1 / CR) rounded to: 0.10 5.10
Derivation of Discount Rate and Capitalization Factor Memo: Derivation of Terminal Value
Date of Marriage Valuation
23. Value at Date of Separation
DCF Valuation
TABLE 2 Exhibit LE 2 Ex. LE 2 LE 2
THE COMPANY 6/30/2005
VALUATION ANALYSIS AS OF JANUARY 1, 2005 12/31/2004
For the Fiscal Years Ended December 31 Terminal
Derivation of Cash Flow 2005 2006 2007 2008 2009 Value
= Cash Flows to Equity $4,000,000 4,280,000 4,579,600 4,900,172 5,243,184 $38,799,562
Discounting Periods 0.50 1.50 2.50 3.50 4.50 5.00
Present Value Factors 0.9192 0.7757 0.6545 0.5523 0.4660 0.4278
Present Value of Cash Flows 3,676,800 3,319,996 2,997,348 2,706,365 2,443,324 16,598,453
Indicated Value $31,742,000 (Rounded)
Long-Term Government Bond Yield-to-Maturity (2005) 4.51% Projected Terminal Year Net Income $5,243,184
Ibbotson Common Stock Premium 6.00% x Terminal Capitalization Factor 7.40
x Market Beta 1.00 = Total Estimated Terminal Value $38,799,562
= Beta Adjusted Common Stock Premium 6.00%
+ Small Capitalization Stock Premium 3.00%
= Total Equity Premium 9.00%
+ Company Risk Premium 5.00%
= Discount Rate (Required Rate of Return) 18.51%
- Sustainable Growth in Earning Power (at end of projection) -5.00%
= Terminal Capitalization Rate 13.51%
Terminal Capitalization Factor (1 / CR) rounded to: 0.10 7.40
Derivation of Discount Rate and Capitalization Factor Memo: Derivation of Terminal Value
Date of Separation Valuation
24. Change in Value : 1995 to 2005
• Questions of the Hour
• Can we explain the components of this change in value
between 1995 and 2005?
• Can we allocate the change into active and passive portions
of the net appreciation?
2005 value $31.7 million
1995 value $ 8.2 million
Net Increase $23.5 million
25. Impact of Change in RFR
1995 to 2005
Projected Cashflows t,05
( 1 + RFR 95 + ICSP 05 + SCP 05 + CRP 05 ) t
Value =
RFR95 7.73%
RFR05 4.51%
Net Change (3.22%)
(Owner has no control over level or direction of interest rates)
26. Impact of Change in RFR
1995 to 2005
TABLE 3 Exhibit LE 3 Ex. LE 3 LE 3
THE COMPANY 6/30/2005
VALUATION ANALYSIS AS OF JANUARY 1, 2005 12/31/2004
For the Fiscal Years Ended December 31 Terminal
Derivation of Cash Flow 2005 2006 2007 2008 2009 Value
= Cash Flows to Equity $4,000,000 4,280,000 4,579,600 4,900,172 5,243,184 $31,459,104
Discounting Periods 0.50 1.50 2.50 3.50 4.50 5.00
Present Value Factors 0.9071 0.7452 0.6121 0.5029 0.4131 0.3741
Present Value of Cash Flows 3,628,400 3,189,456 2,803,173 2,464,296 2,165,959 11,768,851
Indicated Value $26,020,000
Net of change in risk free rate
Long-Term Government Bond Yield-to-Maturity (1995) 7.73% Projected Terminal Year Net Income $5,243,184
Ibbotson Common Stock Premium 6.00% x Terminal Capitalization Factor 6.00
x Market Beta 1.00 = Total Estimated Terminal Value $31,459,104
= Beta Adjusted Common Stock Premium 6.00%
+ Small Capitalization Stock Premium 3.00%
= Total Equity Premium 9.00%
+ Company Risk Premium 5.00%
= Discount Rate (Required Rate of Return) 21.73%
- Sustainable Growth in Earning Power (at end of projection) -5.00%
= Terminal Capitalization Rate 16.73%
Terminal Capitalization Factor (1 / CR) rounded to: 0.10 6.00
Derivation of Discount Rate and Capitalization Factor Memo: Derivation of Terminal Value
1995 RFR
27. Impact of Change in RFR
1995 to 2005
Active or Passive?
Breakdown of Appreciation Components % Total
Value Appreciation Appreciation
Final Value as of January 1, 2005 $31,742,000
Value, net of change in Risk Free Rate $26,020,000
Interest Rate Change (Rates Declined) $5,722,000 24.3%
28. Other Factors
• Changing the Cash Flow – Earning Power - A company’s cash flows can be affected
by external factors and/or by active management factors or by both.
• Changing the Company Risk Premium – Can be due to active management factors.
• The issue is whether or not the effect can be identified and quantified
• Primary questions
• Whether the change in cash flows resulted from an exogenous event (vs. management
direction)?
• Whether the change in company risk resulted from actions of management.
30. Causation in Active Passive Analysis
Causation is an essential element that must reasonably be established to attribute value
changes to either active or passive factors.
• Turner recommends that the tort law definition of “Proximate Cause”, which is often used in
damages and lost profits analyses, is typically more appropriate than “But For Cause”.
• Proximate Cause: “A cause that directly produces an event and without which the event would not have
occurred.
• But – For Cause: “The cause without which the event could not have occurred.”
31. Causation in Active Passive Analysis
• An example from North Carolina – Brackney v. Brackney
• The parties in Brackney signed a contract to purchase a home before the DOS.
• The contract called for $43,400 down payment paid from marital funds before the DOS, which
would be forfeited if they did not close.
• Divorce action was filed before closing of real estate.
• Husband had to file a motion with the trial court to obtain permission to close to avoid forfeiture of
the down payment.
• The husband obtained permission from the court and closed. He later argued that the entire value
of the home net of the down payment was separate, including $181,000 in later passive
appreciation, which he alleged arose solely from his post-separation effort in filing the motion, all of
which was therefore was his separate property.
32. Causation in Active Passive Analysis
• “But For” the husband’s effort in obtaining court approval to close, the down payment would likely
have been lost, so argued the husband. However, the pre-DOS decision to purchase the house, and
the pre-DOS down payment that was made with marital funds, more reasonably and accurately
were the Proximate Causes that resulted in obtaining the house, a marital asset. In addition,
passive market force appreciation was more accurately determined to be the Proximate Cause of
the post separation market appreciation.
• The Brackney appellate court found the house to be a marital asset, and the post separation
appreciation to be caused solely by passive market forces. As such, the appreciation was divisible,
rather than the husband’s separate property.
33. Causation in Active Passive Analysis
• It is noted that there is almost no specific reference to “Proximate Cause” in active passive court cases
around the country. However, objectives required by a majority of equitable distribution statutory and
case law regimes often end of requiring the connection between events and value changes that is
contemplated by Proximate Cause.
35. APA – General Framework
• When determining whether any changes in value of separate property during a
marriage are marital property, Turner identified three categories into which
Active/Passive analyses are broadly segregated based upon his review of cases across
the United States. These include the following:
• Market Forces
• The Efforts of Third Parties
• The Efforts of Divorcing Parties
• Turner notes that “To prove that appreciation was not caused by marital
contributions, the owning spouse must generally prove that the appreciation was
caused by factors other than marital contributions.”
• The following sections will provide an overview of three categories.
37. Market Forces
• Market Forces are typically defined in statute and case law by giving examples of what
constitutes a market force (e.g. inflation, government regulation, etc.).
• The measurement of the impact of a market force on the value of an asset is typically
performed by comparing the performance of the particular asset to the performance
of other, similar assets subject to substantially the same market force.
• Examples include comparing the change in the value of real estate with price movements in similar
real estate in similar markets over the same period or comparing changes in value of a common
stock in comparison to the value changes of comparable publicly traded companies over the same
period.
38. Market Forces
• Case law and learned treatises reflect that common threads or attributes regarding
using Market Forces in APA include:
• The movements of the market force are beyond the control of the management of the divorcing
parties.
• There is a relationship between the changes in a market force and changes in the performance or
value of assets similar to the subject asset.
• Whatever market forces are at play on a comparable asset are reasonably shown to also be at play
on the subject asset, and therefore inferences between the two can be drawn.
39. Market Forces
• Turner reports that, based upon his review of APA cases across the country, “it is
normally easiest to begin with market forces, because market forces can most easily
be quantified.”
• If it is shown that the performance of the subject asset is above the performance of
similar assets, then this is evidence of good management, which can constitute active
increases in value to the degree that the divorcing owner of the asset was involved
with the management of the asset.
40. Market Forces
• Methodologies have been developed to identify market forces that reasonably cause
changes in value of assets similar to the subject asset, and to quantify the expected
increase in the subject asset because of movements in market forces.
• Ashok Abbott - Passive Appreciation Considerations in The Closely Held Company or Professional
Practice.
• Correlation and Causality.
• Data and Methodology
• Empirical Results
41. Market Forces
• Other methodologies have been developed to try to address the broader concepts of
determining active passive appreciation, which also address the measurement of the
impact of market forces.
• Chris Mercer
• Mark Filler
• Brian Boone
43. Individual Efforts
Turner notes that: “When the total of appreciation in separate property has been
measured, and the appreciation caused by market forces has been excluded, what
remains is the appreciation caused by good management of the Asset at issue.”
“Many Assets, especially businesses, are managed by multiple persons. If the owning
spouse can show that some of the appreciation was caused by the efforts of one or
more of these persons, the same appreciation was not [emphasis added] caused by the
efforts of the parties.”
44. Individual Efforts
A number of factors have regularly been considered in Active/Passive cases across the
U.S. when determining the extent to which an individual contributed to the growth of
an asset, and the relative contribution allocated to each individual.
• Control through Investment – which is typically characterized as voting control of a company.
• However, merely because a third party has voting control of an entity does not mean that he or she
exercised that control, nor does it mean that the exercise of that control resulted in increased value.
• Control as Director
• The mere title of director is not by itself sufficient to show that contributions were made, or that those
contributions resulted in increased value.
45. Individual Efforts
• Control as Employee
• Employees can range from the top officers of a company to low-level employees of a Company.
• Top Management
• As Turner explains: “Appreciation in the value of a business is frequently active when the owner is
among the top managers of the company. This is especially true in a small business, where the
extensive powers of a sole shareholder make classification as active hard to avoid.”
• However, the mere holding of a top management title is not controlling unless it can be shown that
contributions were made, and that those contributions resulted in increased value.
46. Individual Efforts
• Middle Management
• As Turner points out: ““The extent to which managers create value, therefore, depends upon the
extent to which they make independent contributions, not overseen or supervised by others. ”
• The extent of independent contributions, and the absence of extensive oversight from higher level
managers, are key determinants of whether a mid-level manager made contributions that increased
the value of a business.
• Low Level Employees
• As Turner points out: “Many business employees do not work at a high enough level to have
meaningful control over corporate operations, and therefore do not contribute to corporate value.”
47. Individual Efforts
• In practice, the determination of the contributions of individuals typically involves:
• Interviewing current and former owners, managers and employees.
• Often some of those employees have moved on or retired, so it can be difficult to track people
down.
• Reviewing any available subject company documents that were developed contemporaneous with
the period under review.
49. Unitary Appreciation
• Turner reports that, based upon his review of cases across the country, “A small
minority of equitable distribution jurisdictions have adopted the theory of unitary
appreciation. Under this theory, appreciation must be either entirely marital property
or entirely separate property.”
• Under this theory, if there is any amount of active appreciation caused by a divorcing
spouse, the underlying asset remains separate, but all the appreciation in spouse’s
interest is marital.
• The business appraiser must take care to recognize if their engaging counsel is
pressuring them to apply a case from a unitary appreciation case to a jurisdiction that
does not apply unitary appreciation.
51. Watch Out for Unusual Case Outcomes
Illustrated in the 2017 Bair case out of Florida.
• Daniel Bair (“Daniel’) and his brother own 47.5 percent each of Quality Boats of Clearwater, Inc.
Other ten percent owned by passive investor sister.
• Trial court found both brothers ran company in a 50/50 fashion, one responsible for finance, admin
and service, the other responsible for sales.
• Trial court applied Daniel’s 47.5 percent ownership interest to the appreciation in the entire
company. See Exhibit A.
• Reflects violations of basic finance and economic theory – when only one class of stock is
outstanding, each share of stock necessarily reflects proportionally all elements of value
enhancement (both active and passive).
• See simplified hypothetical illustration.
52. Starting Value DOM 1,000,000$
Value DOS 10,000,000$
Increase in Value 9,000,000$
Daniel Bair Brother Total Daniel Bair Brother Total
Allocation 50.00% 50.00% 100.00% 50.00% 50.00% 100.00%
Value DOM 500,000$ 500,000$ 1,000,000$
Value DOS 5,000,000$ 5,000,000$ 10,000,000$
Increase in Value 4,500,000$ 4,500,000$ 9,000,000$ 4,500,000$ 4,500,000$ 9,000,000$
DOM Value 500,000$ 500,000$ 1,000,000$
Daniel's Contribution to Value Increase 2,250,000 2,250,000 4,500,000 Court Found Company Increase 9,000,000$
Brother's Contribution to Value Increase 2,250,000 2,250,000 4,500,000 Court Applied Daniel's 50% o'ship 4,500,000$
Sister Contribution to Value Increase ‐ ‐ ‐
Total Value Increase 4,500,000$ 4,500,000$ 9,000,000$
Total Value DOS 5,000,000$ 5,000,000$ 10,000,000$
Location of Increase Caused by Daniel
Total Company Increase Caused by Daniel 4,500,000$ Incorrect Increase fit Within Daniel's
Daniel's Increase Located in Daniel's Shares 2,250,000 2,250,000$ Total Value Increase
Daniel's Increase Located in Brother's Shares 2,250,000 2,250,000
Total Company Increase Caused by Daniel 2,250,000$ 2,250,000$ 4,500,000$
2,250,000$
Overstated Appreciation in Daniel's Shares Caused
by Daniel
Ownership Contribution to Value Increase of Company
Active Passive Appreciation Update
HYPOTHETICAL ILLUSTRATION USING BAIR CASE OUTCOME
54. Allocation of Active Contributions
There are various methods by which active management efforts, and the resulting
increase in value from such efforts, have been allocated among managers.
• Where there are several equally contributing managers, a per-capita allocation can be appropriate.
55. Allocation of Active Contributions
• Appreciation can be allocated among top executives in proportion to some measure of their actual
performance. Measures can include:
• Compensation, on the assumption that there is arm’s length bargaining over the value of each top
executive over their value to the company.
• The amount of key-man life insurance acquired by the company on the lives of its executives.
• Economic data regarding the performance of the areas supervised by different executives.
• Absentee measures
• Turner points out that “Still another approach is to find some measure of what the company’s value
would be in the absence of the efforts of either spouse.”
57. Conclusion
• APA is a creature of divorce statute and case law and thus requires close coordination
between the business appraiser and their engaging legal counsel.
• The business appraiser should get representation from engaging counsel as to the relevant statute
and case law to avoid being criticized for the unlicensed practice of law.
• The business appraiser is not legal counsel and should not interpret statute or case
law, but should be aware of relevant APA statute and case law in the jurisdiction.
58. Conclusion
• Although there currently are limited learned treatises on APA, the business appraiser
doing APA should be aware of such learned treatises.
• A lot of the learned treatise type information has been developed by lawyers who teach or practice
in this area.
• APA is a challenging, intellectually stimulating valuation exercise that encompasses
both determining value and determining why the value changed.
60. About the Presenters
Z. Christopher Mercer, FASA,
CFA, ABAR
Mercer Capital
Founder, Chief Executive Officer
mercerc@mercercapital.com
901.685.2120
Z. Christopher Mercer is the founder and chief executive officer of Mercer Capital. Chris began his valuation career in the late 1970s. He has
prepared, overseen, or contributed to hundreds of valuations for purposes related to tax, ESOPs, buy-sell agreements, and litigation, among others.
In addition, he has served on the boards of directors of several private companies and one public company. He enjoys working with business owners
to address ownership transition issues.
Chris has extensive experience in litigation engagements including statutory fair value cases, divorce, and numerous other matters where valuation
issues are in question. He is also an expert in buy-sell agreement disputes.
Chris is a prolific author on valuation-related topics and a frequent speaker on business valuation issues for national professional associations and
other business and professional groups.
Ashok B. Abbott, Ph.D
West Virginia University
Associate Professor of Finance
Ashok.Abbott@mail.wvu.edu
Ashok Abbott is a tenured Associate Professor of Finance at West Virginia University in Morgantown, West Virginia. Ashok received his M.B.A.
and Ph.D. in Finance from Virginia Tech, Blacksburg, VA. His Ph.D. dissertation title was "The Valuation Effects of Tax Legislation in Corporate Sell-offs.”
Prof. Abbott provides analytical and research support to members of legal and valuation community. He has served as an expert witness in State and
Federal Court for depositions, hearings, and trials. His recent assignments include working with S&P, Duff & Phelps, and Willamette
Management Associates.
Prof. Abbott supports valuation practitioners and litigators with quantitative research, statistical analysis and economic modeling. His statistical
capabilities include sampling and research design, testing for statistical significance, modeling and estimation and regression and time series analysis.
He works closely with litigation teams, presenting them with his independent analysis of financial and economic data. He also provides a professional
critique of the opposing expert's analysis.
61. About the Presenters
Jay E. Fishman, FASA, FRICS
Financial Research Associates
Managing Director
JFishman@finresearch.com
Jay E. Fishman has been actively engaged in the appraisal profession since 1974. He has been qualified as an expert witness on business
valuation matters in eleven states, and frequently serves as a court appointed expert. In addition, he has taught courses on business valuation for
the IRS, the AICPA, and the National Judicial College. Mr. Fishman is the Past Chair of the American Society of Appraisers’ Business Valuation
Committee.
He is the co-author, with Shannon Pratt, of the Guide to Business Valuation, and co-author, with Shannon Pratt and William Morrison of Standards
of Value: Theory and Applications.
Bill Dameworth, CPA, ABV, CFF,
CVA, MAFF
Forensic Strategic Solutions, LLC
Member in Charge of Valuation
Services
bill@forensicstrategic.com
336.397.0863
William C. Dameworth is a managing member of Forensic Strategic Solutions and the member in charge of valuation services.
Mr. Dameworth’s extensive business valuation and litigation consulting experience includes services in over 500 engagements for a wide variety of
purposes, including gift, estate, family law matters, shareholder disputes, shareholder buyouts, buy/sell agreements, charitable contributions,
purchase price allocation, goodwill impairment testing, intangible asset valuation, mergers and acquisitions, ESOPs, business damages, asset
tracing, and active/passive appreciation analysis. These services have been related to corporations, partnerships and limited liability companies
across the manufacturing, wholesale, retail and service sectors. Mr. Dameworth has served as an expert witness in Federal and state courts for
plaintiffs, defendants and mutual.