Courts conflict on what makes for credible financial evidence

Hugh v. Hugh, 2014 Va. App. LEXIS 222 (June 3, 2014)

How much financial evidence does a trial court need to value a family business for divorce purposes and how “good” does that evidence have to be? A recent appeals court decision from Virginia shows two courts of differing minds. It also reveals that the threshold to qualify evidence for valuation may be fairly low.

A nasty fight between the husband and wife featured questionable financial records, problematic expert testimony, and highly polarized value determinations. The nature of the husband’s business was unclear. The husband never retained an expert but at trial testified that the company did business  “everywhere” and that it had no inventory at that moment. He blamed the bad economy for a drastic reduction in income. The wife did retain an expert, but his access to relevant financial and corporate information was limited. He said he received “scant information” from the husband. He detected discrepancies between the income stated in the tax return and in a corresponding financial statement. He admitted that his valuation did not meet AICPA standards but thought overall he was able to generate a “reasonable estimate of the company as it [was].”

The trial court disagreed; the appeals court, in turn, disagreed with the trial court. Find out about the courts' reasoning here.