Valuation of Intangible Assets in Family Law Cases

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Date: Summer 2018
From: American Journal of Family Law(Vol. 32, Issue 2)
Publisher: Aspen Publishers, Inc.
Document Type: Article
Length: 3,799 words
Lexile Measure: 1440L

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This three-part article discusses the valuation of intangible assets in Family Law cases. Part I covers business combination accounting, intangible asset attributes and categories, and the valuation assignment and analysis. Part II will discuss valuation approaches and methodologies (cost, market, income). Part III will turn to income and cost approach examples, common databases, and errors to avoid.

This article focuses on the recognition and valuation of identifiable intangible assets for family law purposes. There are several instances when an intangible asset valuation may be relevant within a family law context. First, the marital estate may own intangible assets (such as intellectual property) directly. Second, the marital estate may have an ownership interest in a closely held business or professional practice. In the asset-based business valuation approach, the value of a business or practice depends, in part, on the value of its intangible assets. Third, the value of the business or practice may depend on intangible assets that were created or contributed before the date of the marriage. Or, the value of the business or practice may depend on intangible assets that were created or contributed by one spouse or the other during the marriage. Fourth, the business or practice intangible assets may serve as a device to achieve a distribution of assets in a marital dissolution. That is, one spouse could own the business or practice equity. That business could distribute its intangible assets to the other spouse. The distributee spouse would enter into a license agreement, licensing the use of the distributed intangible asset back to the operating business. That license would provide income and wealth to the distributee spouse. Under this arrangement, the business/practice ownership interest would not need to be divided among the marital parties in order to achieve a fair distribution of the marital assets.

Under certain limited circumstances, identifiable intangible assets are valued and recorded for U.S. generally accepted accounting principle (GAAP) compliance purposes. This article summarizes the generally accepted procedures used to value identifiable intangible assets for GAAP financial reporting purposes. It also considers how those procedures may inform marital parties (parties), family law counsel (counsel), and valuation analysts (analysts) who have to recognize and value intangible assets as part of a family law matter.

BUSINESS COMBINATION ACQUISITION ACCOUNTING

Under GAAP, guidance regarding an acquirer's business combination is provided by the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) topic 805, Business Combinations. Under ASC 805, the acquirer accounts for a business combination under what is called the acquisition method of accounting. Experienced analysts recall the now-obsolete GAAP term "purchase method" of accounting. Several years ago, the FASB changed the previous terminology "purchase method" (and the FASB also changed many of the technical accounting procedures) to the current terminology "acquisition method." The reason for this terminology change was to emphasize that, under ASC 805, a business combination transaction occurs in a change of control event--even when a merger or acquisition purchase transaction is not involved.

Inexperienced analysts sometimes ask: Why can't I simply...

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Gale Document Number: GALE|A541787095