Does Cousin’s Business Estimate Count for Anything?
When you split with your spouse, it might be tempting to use friends or family members – especially those who are professionals in various relevant disciplines – to help gather financial information for the equalization process. But a recent case suggests that it’s not a good idea, since courts are justifiably wary of information provided by such potentially-biased parties.
In Serafini v. Serafini, the couple split in 2004 after 14 years together. At that point, the husband owned shares in three different businesses. The husband’s declared income for the purposes of dividing their family assets was somewhat suspect: for the years 2005 through 2008, is income was $115,000; but starting in 2009, his annual declared income dropped to around $60,000 and even as low as $36,000 in one year. Based on these figures, the husband went to court to declare that he had actually been overpaying child support for several years.
The wife, on the other hand, claimed that the husband’s actual income for those years was actually as high as $200,000 in some years (though she conceded that it likely reached a low of $24,000 in 2010). Her estimate of his average income for some of those years was more in the $150,000-per-year range.
As part of the process of ascertaining his income and untangling the family assets, the husband provided an estimate of the shares he had in the companies, by way of a one-page letter that had been prepared by the corporation’s Chartered Accountant. As it happened, that Chartered Accountant was the husband’s cousin.
The cousin prepared the estimate even though the corporations had four Chartered Business Valuators on staff. It was prefaced by a letter that attempted to qualify the report, stating:
We have not been engaged to prepare a formal valuation report. We have extensive working paper analysis and calculations to support the above-noted estimates. This information will be furnished upon request.
The judge found that his one-page estimate was flawed in many respects: it did not set out the basis for the various calculations, did not follow the generally-accepted guidelines of Chartered Business Valuators, and was not created using proper evaluation techniques. In short: the cousin was not an expert valuator, and his proffered report clearly showed it.
The judge pointed out that the duty of an expert is to “provide opinion evidence that is fair, objective and non-partisan,” while adding, “I do not have any faith in the conclusions reached by [the cousin] and find that he is indeed in a conflict position.”
Rather than accept the estimate by the husband’s cousin, the judge appointed a joint expert to review what the cousin had done. What that expert found, in fact, is that the companies owed the husband money at the date of separation, which the cousin had failed to account for in the estimate that had been prepared. Those owed amounts should have been included in the husband’s net family property statement; the judge made the necessary numerical adjustment. With the husband’s net family property being about $573,000 and the wife’s being around $198,000, the husband owed the wife an equalization payment of almost $190,000.
For the full text of the decision, see:
Serafini v. Serafini, 2013 ONSC 2472 (CanLII) http://canlii.ca/t/fx6t5
It’s always better to have an unbiased third-party to assist with the preparation of Financial Statements and other related documentation.
At Russell Alexander, Family Lawyers our focus is exclusively family law, offering pre-separation legal advice and assisting clients with family related issues including: custody and access, separation agreements, child and spousal support, division of family property, paternity disputes, and enforcement of court orders. For more information, visit us at www.RussellAlexander.com.