Find out about the key differences in business valuation for family and inheritance law matters in accordance with IDW Standard 13.
Find out about the key differences in business valuation for family and inheritance law matters in accordance with IDW Standard 13.
A special feature of determining the value of a company for the purposes of family and inheritance law is that there are often two valuation dates. In the context of family law disputes, valuations must be carried out for both the initial assets and the final assets. The extent to which the initial and final assets are actually relevant for the specific valuation case depends on the dates on which an interest in the company to be valued existed.
From the perspective of the appraiser, it is important to consider the state of information at these two points in time. Events and findings that have occurred in the meantime are not relevant. Experience has shown that this is particularly difficult if the probable development on the valuation date of the initial assets and the actual development differ significantly. IDW Standard 13 therefore explicitly refers to the risk of a retrospective error.
This can be made more difficult by the fact that documents relevant to the valuation date of the initial assets are no longer available, e.g. due to a liquidation that has taken place. Often, statutory retention periods have also expired by the time the valuation is carried out, meaning that there are no longer any documents on which the valuation can be based.
According to IDW Standard 13, the initial and final assets are to be valued according to the same principles. In this context, the valuation principles recognized in theory and practice at the time the valuation is carried out are decisive. A breach of this principle is also not justified if a valuation on the valuation date of the initial assets is less well-founded than on the valuation date of the final assets, e.g. due to a poorer data situation for the valuation parameters or if valuations using other methods are already available on this valuation date.
The statements of IDW Standard 13 in connection with the available information on the valuation object show how uncertain the valuation of a company can be on the initial asset valuation date. Accordingly, the information available may be limited for various reasons. These include
The circumstance of missing information will regularly occur in valuation practice. In cases of missing documents and information, it is the responsibility of the valuer to make assumptions that are as realistic as possible and to point out the uncertainty of the valuation result due to information deficiencies in the valuation report.
By taking into account IDW Practice Note 1/2014, the FAUB confirms that only the transferable earning power available in the company should be taken into account when determining an objectified business value. The IDW distinguishes between fully transferable and partially or temporarily transferable earning power.
The IDW Standard 1 assumes that the management has no significant influence on the earning power of the company, i.e. that the existing earning power of the valuation object can also be maintained with a different managing director and is always fully transferable. This assumption of complete transferability of earning power cannot be regularly assumed for SMEs. If the management of the company to be valued has contributed significantly to the success of the company, for example due to individual skills or personal contacts with customers, it cannot be assumed that a third party managing director can contribute to the success of the company to the same extent. The income of the valuation object may then have to be reduced over time as part of the valuation.
Particularly in the case of owner-managed small and medium-sized enterprises in the form of a partnership, the issue of appropriate entrepreneurial remuneration is often of particular importance for the valuation, as the agreement between owner and management often leads to shifts between the remuneration of the managing director and the remuneration of the shareholder. Both "underpayment" and "overpayment" of a value-relevant magnitude are possible here.
Under certain circumstances, it may be appropriate not to assume a standard market remuneration when determining the imputed entrepreneur's wage, but to use the individual entrepreneur's wage that is specifically justified in the individual case when determining the claim to equalization of gains, taking into account the circumstances of the valuation object.
IDW Standard 13 places special requirements on the valuation of companies in the context of family and inheritance law matters. The most important special features include the valuation on two valuation dates, the consistency of methods, the handling of often poorly available information, the need to determine the transferable earning power and the determination of an imputed entrepreneur's wage. These special features help to ensure a realistic and fair valuation that does justice to the specific circumstances of such valuation occasions.
For more information on the application of IDW Standard 13 and other relevant topics in business valuation, visit our knowledge base or contact us for individual advice.
