When a private business is one of the largest assets in a divorce, each spouse may retain a Chartered Business Valuator (CBV). The resulting reports can appear authoritative, detailed, and professionally prepared—yet reach conclusions that differ by hundreds of thousands or even millions of dollars.
That gap does not automatically mean one expert is careless or biased. Business valuation is not a mechanical exercise with a single indisputable answer. It requires professional judgment about future earnings, risk, taxes, goodwill, market evidence, and the economic conditions that existed on the applicable valuation date. Small differences in several assumptions can compound into a substantial difference in value.
Courts therefore look beyond the final numbers. They consider whether each expert used reliable information, selected an appropriate methodology, tested key assumptions, remained independent, and explained the reasoning in a way the court could evaluate.
Understanding how valuation disputes arise can help spouses, and their lawyers focus on the issues that genuinely drive value—and avoid paying experts to debate points that do not affect the result.
Why Can Two CBVs Produce Different Business Values?
Two qualified CBVs may review the same company and disagree because they received different instructions, information, or assumptions. They may also exercise professional judgment differently within an acceptable range.
The most common sources of disagreement include:
- the valuation date;
- the interest or shares being valued;
- the standard and premise of value;
- normalized or maintainable earnings;
- forecasts and future growth;
- capitalization and discount rates;
- treatment of goodwill;
- redundant assets and excess working capital;
- contingent liabilities and income taxes;
- minority-interest or marketability discounts; and
- the reliability of management information.
Before comparing two conclusions, the parties should confirm that the experts answered the same question. A report valuing all operating assets is not directly comparable to a report valuing one spouse’s specific shareholding. Similarly, a calculation prepared for settlement advice may have a narrower scope than a valuation or expert report intended for court.
Different Assumptions Can Produce Large Valuation Gaps
Valuation conclusions are highly sensitive to assumptions. Consider a company whose reported earnings include the owner’s salary, personal expenses, unusual legal fees, and income from a one-time contract. Each CBV must determine which items should be normalized to estimate maintainable business earnings.
One expert may conclude that annual maintainable cash flow is $500,000. Another may use $400,000 after removing non-recurring revenue and adding the cost of replacement management. If the first expert also applies a lower capitalization rate because the business is viewed as stable, the difference between the two valuations can become substantial.
Common disputed assumptions include:
Owner Compensation
An owner-manager may receive a salary above or below market rates. The CBV may adjust compensation to the amount required to hire a replacement. Disagreement can arise over what duties the owner performs and what a qualified replacement would cost.
Personal and Discretionary Expenses
Private companies sometimes pay expenses that provide a personal benefit to shareholders. The parties may disagree over whether travel, vehicles, family payroll, meals, insurance, or professional fees are business expenses, personal benefits, or a mixture of both.
Forecast Growth
A high-growth assumption can increase value, but only if supported. Experts may weigh signed contracts, customer concentration, capacity limits, market trends, and management forecasts differently.
Business Risk
Capitalization and discount rates reflect risk. A company dependent on one customer, one supplier, or the owner’s personal relationships may justify a higher rate and therefore a lower value. Experts may disagree about the severity and duration of those risks.
Tax and Transaction Costs
Potential corporate tax, capital gains, and disposition costs can have a major impact. The legal and factual question is not simply whether a tax could arise, but whether the liability is sufficiently likely, how it would be triggered, and how a hypothetical purchaser would account for it.
Valuation Methodology: Income, Market, or Asset Approach?
CBVs generally consider three broad valuation approaches.
Income Approach
The income approach estimates value from the future economic benefits of the business. Common methods include capitalized cash flow and discounted cash flow. It is often central when a profitable operating company is expected to continue as a going concern.
Disputes may concern maintainable earnings, forecast periods, terminal value, growth, and the rate used to reflect risk.
Market Approach
The market approach uses evidence from comparable public companies or business transactions. Its strength depends on the quality and comparability of the data. Private companies often differ in size, geography, customer mix, margins, and owner dependence, so adjustments may be necessary.
Experts may disagree over which comparable to include and whether observed multiples apply to the subject business.
Asset Approach
The asset approach estimates the value of assets less liabilities, generally after appropriate adjustments. It may be particularly relevant for holding companies, real estate businesses, investment entities, or companies whose earnings do not adequately reflect their underlying asset value.
A court does not necessarily prefer one method in every case. The important question is whether the selected approach fits the nature of the company, the purpose of the valuation, and the available evidence. A persuasive expert also explains why other potentially relevant approaches were not used or were given less weight.
Frequently Asked Questions
Why can two CBVs reach different values?
Valuation requires judgment about earnings, growth, risk, taxes, goodwill, and other factors. Reasonable differences can produce a large valuation gap.
Does a large gap mean one expert is wrong?
Not necessarily. The experts may have received different information or instructions, or used different assumptions.
What should be compared first?
Confirm that both experts used the same valuation date, valued the same ownership interest, and applied comparable standards and scopes.
Which assumptions matter most?
Common issues include normalized earnings, owner compensation, growth, risk rates, personal expenses, taxes, goodwill, and redundant assets.
How do courts assess competing reports?
Courts consider the reliability of the information, the suitability of the method, the reasonableness of the assumptions, and the expert’s independence and explanation.
Bottom Line
Focus on the assumptions driving the valuation gap—not just the final numbers. Identifying which differences materially affect value can narrow the dispute and reduce unnecessary time and expense.
Need Clarity in a Business Valuation Dispute?
When competing valuation reports produce very different conclusions, the assumptions behind the numbers matter. An independent Chartered Business Valuator can help identify the key differences, assess whether the methodologies are supportable, and provide a clear, credible opinion.
Contact Troy Valuations to discuss your business valuation and learn how we can help you move forward with confidence.