BUSINESS VALUATION Concepts                                                            Issue #2                     5/2005

BUSINESS VALUATION Concepts is a publication from the BUSINESS VALUATION & LITIGATION SUPPORT Department of Jones & Roth, P.C. offering a series of brief pointers (elementary to advanced) dedicated to provide insight into the “rocket science” of BV.

STANDARDS OF VALUE IN OREGON

While most are familiar with the “fair market value” standard of value commonly used for tax related valuations, and in a variety of other situations, there are a number of other standards of value used in valuation.  These include “fair value”, “investment” or “strategic value”, “liquidation value”, “intrinsic value”, “book value”, and others.  The significant differences between many of these standards of value relates to who the potential buyer of the investment interest is and the purpose of the appraisal.  Fair value, for example, is defined in ORS 60.551(4) for shareholder/partner oppression cases.  Fair market value attempts to determine a transaction price between a hypothetical buyer and seller, i.e. an orderly auction value.  Investment or strategic value is developed in accordance with the benefits of ownership to particular investor and takes into account that investor’s specific investment expectations, perceptions, and circumstances.

In an interview published in the December 1995 issue of Business Valuation Update, then Oregon Appellate Court Judge William Riggs, author of the defining Tofte decision (134 Ore App.149 filed 5/24/95), stated that for marital dissolution purposes “… there is no statutory standard of value, and … there is no clear-cut standard established by case precedent.  To the extent that we have a standard, we tend to focus on what a hypothetical person would pay;  however, the standard of value can be whatever the experts say, and the Court will consider it on a case-by-case basis.”  Judge Riggs is currently a justice on the Oregon Supreme Court.

A number of states use a standard of value other than fair market value in marital dissolution cases.  In addition, while some states call their “divorce value” fair market value, the application of the standard more closely reflects what is generally considered “fair value”, the pro-rata value of the 100% enterprise value (no discounts applied).

As noted by Judge Riggs, since the state of Oregon does not have, for marital dissolution cases, a standard of value either defined in the Oregon Revised Statutes or by established precedent, the attorney should consider the specific facts and circumstances in each case to determine if the use of a standard of value, other than fair market value, will result in a more beneficial result for their client and/or a more equitable division of the property.

Standard of value generally has the single greatest impact on appraised value of any variable in the analysis.

Jones & Roth, P.C. is one of Oregon’s largest consulting and CPA firms serving you from offices in Lane, Deschutes, and Washington Counties.  Our BV and litigation support team has a combined experience of more than 40 years.  Bill Mason has been providing this expertise for more than 25 years.  All members of our team are credentialed