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Author: David E. Consigli

David Consigli, Jr. is a Certified Public Accountant and Partner at Ferraro, Amodio and Zarecki, CPAs. David has an Accreditation in Business Valuation and is a Certified Divorce Financial Analyst. David practices a philosophy built around providing clients with outstanding creative and personalized quality services. David's experience and expertise help him provide clients with the tools and resources they need to understand the valuation of closely-held businesses, especially when it comes to divorce. His strengths in communicating the results of his valuation conclusion to clients are qualities that make him a leader in the industry.

Marketability Discounts

Written by David E. Consigli on . Posted in Webinars & Other Podcasts.

Host: David Consigli, CPA/ABV, CDFA, FAZ CPAs

Guest(s): Brian McIntyre, CVA, Partner, Withum – Forensic and Valuation Services and Natalya Abdrasilova, CPA/ABV, MAFF, CVA, Director of Valuation & Litigation Services, BDM, PC

Description: In this episode we interview Brian McIntyre and Natalya Abdrasilova, presenters at the 2022 FVS Conference, and discuss the following:

  • Concepts surrounding marketability discounts are always evolving
  • The criticality of finding data to support your conclusions
  • Need to be flexible to different options for valuing marketability
  • There is no “one size fits all” for determining marketability discounts
  • Common errors Natalya and Brian have observed
Listen Now

For further exploration on this topic: If you’re using a podcast app that does not hyperlink to the resources, please visit https://fvssection.libsyn.com/fvs to access the show notes with direct links.

Resources available as part of FVS Section membership: BRG (Business Reference Guide) Online – Provides an overview of different markets to create a baseline to develop discounts. Available for purchase from AICPAconferences.com: AICPA-CIMA Forensic and Valuation Services Conference, session: Marketability Discount

This podcast episode is part of the extensive resource library available from the AICPA’s Forensic and Valuation Services Section, the premier provider of guidance, tools, and advocacy for professionals who specialize in providing forensics, valuation, litigation, and fraud services. Visit us online at www.aicpa.org/fvs, and if you’re not already a member, consider joining this active community of your FVS peers. You’ll get free CPE, and access to rich technical content.

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Information on Credentials

Our FVS credential programs allow AICPA members to demonstrate competence and confidence in providing forensic and valuation services to their clients.

  • ABV Credential (Accredited in Business Valuation)
  • CFF Credential (Certified in Fraud and Forensics)

Cavanagh v Cavanagh in Calculating Alimony and Child Support

Written by David E. Consigli on . Posted in Business Valuation, Business Valuations for Litigation.

divorce

On August 8, 2022, the Massachusetts case of Michael D. Cavanagh vs Lynn A. Cavanagh was decided and changed the way alimony and child support are now calculated in Massachusetts. 

Both parties sought modification of the child support order issued as part of the original divorce judgment and the mother sought alimony for the first time. The court was asked to determine if a provision of the Alimony Reform Act G.L. c. 208, 53(c) (2) prohibits an award of alimony where child support has been ordered, among other things.

Michael Cavanagh (“father”) and Lynn Cavanagh (“mother”) were divorce in 2016 after a twenty-one-year marriage. The parties have three sons. The two older sons are currently over the age of majority.  The youngest son attends a private preparatory school previously attended by the two older sons.

Prior to and during the first year of the marriage the father attended school to become a physician’s assistant. Before and during the marriage the parties lived with the mother’s parents before moving into a house purchased by the mother and father. The father was not on the mortgage due his school debt and during the marriage the debt was paid off.

The father held two jobs and the case describes the parties enjoying a comfortable, middle-class lifestyle.

The mother returned to the workforce in September 2016 as a teacher in a Catholic School.

The judge finds the mother’s weekly gross income to be $719.24 and the father’s weekly gross income to be $4,388.00.

The court noted that it makes little sense to tie the availability of alimony to the provision of child support where child support and alimony serve distinct purposes.

Child support is intended to provide financial support for children whereas alimony is intended to provide financial support on an economically dependent former spouse. The case outlines how both forms of support should be calculated as follows:

  • Calculate alimony first, in light of the statutory factors enumerate in 53(a) and the principle that, with the exception of reimbursement alimony, the amount of alimony should be determine with reference to the recipient spouse’s need for support to allow the spouse to maintain the lifestyle enjoyed prior to the termination of the party’s marriage.
  • Calculate child support first. Then calculate alimony, considering, the extent possible, the statutory factors enumerated in 53(a). We acknowledge that in the overwhelming majority of cases, the calculation of child support first will preclude any alimony being calculated in the step.
  • Compare the base award and tax consequences of the order that would result from the calculations in step (1) with those of the order that would result from the calculations in step (2) above. The judge should then determine which order would be the most equitable for the family before the court, considering the mandatory statutory factors set forth in G.L. c 208, 5(a), and the public policy that children be supported as completely as possible by their parents’ resources, G.L. C. 208,28 and determine which order to issue accordingly.

This will change how these support calculations will occur in the future and with the need to gross up the award, using a Certified Public Account familiar with divorce proceedings will enable attorneys and clients to determine the appropriate amounts.

Construction

Valuation for Litigation in Construction and Divorce

Written by David E. Consigli on . Posted in Case Snapshots.

Construction

The importance of proper valuation methods and theory is critical for litigation purposes. In addition, being able to communicate your findings to a jury or trier of fact.

Background

Two brothers owned a small successful construction company. One brother supervised and was hands on in most of the work, while the other brother ran the office and generated most of the sales. The “office brother” began to get involved in other interests and slowly began to be less involved in the business, which caused sales and profit to decline. The brother who remained in the business got jobs by word of mouth and slowly began to downsize the business and continued to do most of the work by himself. 

Divorce

The brother who left the business was then going through a divorce. David Consigli, partner at FAZ CPAs, was hired to value the business. An opposing expert was also hired. The two valuations were far enough apart in dollar amount that the case went to trial. David used a weighted average of cash flow for a five year period, to forecast future cash flow. This took into account a complete business cycle and the latest down trend in sales and profits due to the change in the make-up of the Company. The opposing expert used a twelve year historical period to forecast cash flow.

Outcome

Even though the final valuation conclusion was much less than in the past, David was able to testify to the judge on why future cash flow forecasting is critical to determining the current value of a business and how the past performance is not always the best indication of future.

Top Five Valuation Mistakes in Your Buy/Sell Agreement

Written by David E. Consigli on . Posted in Business Valuation, Business Valuations for Advisory, Business Valuations for Litigation.

A Buy/Sell Agreement, also called a business pre-nuptial agreement, or a business will, is a legal document that is used as the mechanism governs business owners when one of them leaves the business. The reality is that every business owner is going to leave. The reasons could be the owner quits, dies, becomes disabled, retires, or is fired. Buy/sell agreements can also alleviate problems
creating with shareholders going through a divorce. Here are five mistakes often overlooked in Buy/Sell Agreements.

  1. Valuations are not updated-The most common changes that happen in a privately owned business are that the value of the business changes over time. If the business valuation is not updated then if a triggering event occurs what happens?
  2. The Buy/Sell Agreement calls for multiple Appraisers – This can be a very costly proposition. The agreement will state that an appraiser for each side values the business and if they are not within a certain percentage, then a third appraiser is hired. This can be very costly paying for up to three appraisers. A better approach is to have one appraiser who updates the appraisal on a consistent basis (every two years or so).
  3. Using a Formula Method to Value-using a formula method can certainly cut costs on a formal appraisal and may seem easy, but in most situations the value of your business interest is your
    biggest asset. Wouldn’t you want to know with a high level of certainty that you are getting and/or paying the accurate amount for the business?
  4. Not properly funding life insurance proceeds-In the worst case scenario the shareholder passes away and his heirs are paid with life insurance proceeds. The Internal Revenue Service assesses a value much higher than what is reported on the estate tax return. The heirs now have a tax bill and in addition, don’t receive full value for the business.
  5. The wrong standard of value is used-the standard of value is predicated on state law. This is where the appraiser and the attorney work together to make sure that discounts are not taken where  they are not appropriate.

Buy/Sell Agreements are meant to provide the means to transfer ownership interests in a business during the triggering event. The correct valuation is a critical component of those means. Hiring a qualified thought leader in the industry will help alleviate the stress that comes this important succession planning tool.

Divorce and Business

Written by David E. Consigli on . Posted in Business Valuation, Business Valuations for Advisory.

“Divorce can be one of the most stressful events in a person’s life next to the death of a loved one.” This is a pretty bold statement. I have also heard that a divorce is a business breakup. When one spouse owns or has an interest in a privately held business, the divorce process becomes even more complicated. Many issues arise that attorneys and divorce financial analysts need to be aware of.

VALUATION

The first issue in a divorce when a business is involved is the value of the business. An interest in a privately owned business is a marital asset and subject to division. The way that business is valued is dependent on the state in which the divorce occurs. The method in which the business is valued is called the standard of value. For example, in Massachusetts the standard of value is case-by case-specific.1 For most valuations, Fair Value is the standard of value. Though there is no specific definition of Fair Value, it is Fair Market Value without discounts. 

In Pennsylvania, Illinois, North Carolina and New Jersey, the standard of value is Fair Market Value. Fair Market Value is the amount at which the property would change hands between a willing buyer and willing seller when the former is not under any compulsion to buy. The latter is not under any compulsion to sell, with both parties having reasonable knowledge of relevant facts.

Some states are more complicated, like California, which defines the standard of value as value to the holder. The company may not have a market value for sale but the business’s value to the owner. For example, let’s have a sole proprietor who has net income on Schedule C – Profit or Loss From Business of $150,000. If the market salary for the industry for this owner is $100,000, they would have a $50,000 benefit for this business. A valuation analyst would then determine the value to the owner is the $50,000 worth, and that would be an asset divided in a divorce. However, some states have two standards of value. In New Jersey, the standard of value is Fair Value or Investment Value, and New York is Fair Market Value or Investment Value.

INVESTMENT VALUE INCOME

What a company reports on their financial statement or tax return for net income may not be the same as income used for income calculations for child support and alimony. These amounts need to be adjusted to account for discretionary expenses, generally accepted accounting principles and non-recurring income. 

Expenses are challenging for “flow-through entities” such as S Corporations, Partnerships, Limited Liability Companies, and Limited Liability Partnerships. Some examples are:

  • Discretionary expenses include owner’s compensation, rent paid to affiliates, auto expenses, charitable contributions, meals and entertainment, and country club dues. These items get added back to income based on their nature.
  • Generally Accepted Accounting Principles (GAAP) – These adjustments could include converting the cash basis of accounting to the accrual basis of accounting, tax depreciation to GAAP depreciation, tax accruals, and other adjustments.
  • Non-Recurring Items – These adjustments would include income and expenses that may have been only one-time occurrences, such as sales, legal expenses, bad debt write-offs, or forgiveness of loans such as Payroll Protection Program loans.

CONCLUSION

There are many issues involved when dealing with businesses than meets the eye. Attorneys and Divorce Financial Analysts need to use experts knowledgeable in these areas to ensure that the asset division and income calculations comply with the state-specific requirements and that proper accounting has been met.

1 Bernier vs. Bernier

*Source: BVResources.com as of April 2019.

Read Our Reviews

FAZ Forensics is rated 4.95 out of 5.0 stars based on 21 review(s).

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FAZ Forensics did a full review and evaluation of my business and I was very happy with the level of detail and expertise.

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Christian has, along with his good nature and thoughtful regard, been exceedingly helpful with sorting out the complexities of our case. We could not be more pleased with our exchange. Thomas and Hema Easley

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Really good, very knowledgeable and communicated with us every step of the way.

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Thanks!

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Awesome team! They were a pleasure to work with. I would definitely recommend.

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FAZ was extremely thorough and professional in doing our business valuation. We are very pleased with the results

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Steve and GeNet were great at the valuation we needed. Very satisfied. Thanks,Vince and Anne

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Perfect

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Gen'et and Paul were extremely responsive to our needs. They listened and responded to any concerns that we had. I would highly recommend them for any forensic engagement needs.

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Thank-you for asking. Our experience was excellent. The people at FAZ showed a depth of knowledge and experience that was very helpful with the undertaking before us. Well done.

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The CPAs and staff at FAZ are truly amazing. They explain their process very well and always answered my questions right away. I highly recommend them for all your forensic accounting and evaluation services.

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Steve Ferraro did an excellent job and worked tirelessly as our expert forensic accountant witness. Based on Steve's hard work, the jury awarded every penny that Steve showed our client to be entitled to and completely rejected the conclusions of the opposing side's expert.

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