Valuation Issues of Law Firms in Divorce

Attorneys in all practice area specialties will experience divorce as much as the rest of the population. Your practices and licenses may be marital property and subject to equitable distribution.  This blog discusses the various aspects, methods and unique issues surrounding law firm valuations, whether you are a sole practitioner partnership (LLP), P.C or P.C “S” Corporation.

Law firm valuations in a divorce provide unique and special problems.  There are numerous valuation factors that define the scope of a law firm valuation pursuant to a divorce.

  • Valuation date (for divorces, the date of commencement of the marital action)
  • Percentage interest being valued-is it a majority (controlling) or minority (non-controlling)
  • Standard of value (fair market value in NYS divorce cases)
  • Premise of value (is practice a going concern or imminently liquidating)
  • Valuation methods (Income, Market, Net Adjusted Value of balance sheet)
  • The production of a Valuation Report stipulating the valuation expert’s conclusion of value
  • Personal  Injury Law firms – contingency fee lawsuits in process
  • Trust and Estate Law firms – Projection of future income from existing wills held by the firm
  • Restrictive buy-sell agreements
  • Privileged, confidential and proprietary information – Court may require production of records under a protective             order
  • Work in progress (unbilled hours)

The valuation of a law firm is considered an asset sale regardless of the legal form of the practice.  This means that a hypothetical buyer is not acquiring all the assets and liabilities, and separate calculation of assets retained by the hypothetical seller is added to the valued practice reduced by the liabilities similarly retained.

 -Dennis Kremer, CPA, Partner