Valuation for Litigation: When It’s Legally Required

When legal disputes involve a business, a valuation isn’t always optional—it’s often legally required. Whether you're facing a divorce, shareholder dispute, or economic damages case, the court may need an independent, defensible business valuation to determine damages, divide assets, or assess financial interests.

A litigation-grade valuation must be detailed, unbiased, and prepared according to professional standards. If done incorrectly, it can weaken your legal position—or even lead to court sanctions.

Step-by-Step: How to Handle a Litigation Valuation

1. Identify the Trigger Event

Common litigation scenarios that require a business valuation include:

• Divorce proceedings (to value marital property)

• Shareholder or partnership disputes

• Economic damages (lost profits, breach of contract)

• Business dissolution or buyout proceedings

• Tax controversies involving the IRS

  
  

Courts and attorneys typically require a Certified Valuation Analyst (CVA) or similarly credentialed expert to conduct the analysis.

2. Hire a Qualified Valuation Expert

Look for someone who:

• Holds credentials such as CVA, ASA, or ABV

• Has litigation experience and can serve as an expert witness

• Follows accepted methodologies and court-admissible standards (e.g., those from the National Association of Certified Valuators and Analysts (NACVA))

  
  

Engaging the right expert early allows for strategic planning, document gathering, and case support.

3. Determine the Valuation Date and Standard of Value

These two legal elements are case-specific:

• Valuation Date – Could be the filing date of the lawsuit, date of separation, or another legally defined point in time.

• Standard of Value – Often “fair market value” or “fair value,” depending on state law or the court’s directive.

  
  

Your attorney and valuation expert will coordinate on this.

4. Gather Financial and Operational Records

You’ll need to provide:

• Tax returns (3–5 years)

• Profit & loss statements and balance sheets

• General ledger reports

• Ownership agreements (e.g., operating agreement, bylaws)

• Payroll records and distributions

• Customer, contract, or inventory data, if relevant

  
  

Clear, consistent records help ensure your valuation holds up under legal scrutiny.

5. Allow Time for Analysis and Review

Litigation valuations are more detailed and time-consuming than standard reports. The analyst may:

• Perform interviews

• Conduct forensic reviews for discrepancies

• Reconstruct missing records

• Prepare a valuation report in accordance with NACVA or court standards

  
  

This process often requires weeks—not days—so plan accordingly with your legal team.

6. Be Ready for Testimony

If your case goes to trial or mediation, your valuation expert may be called to testify. This includes:

• Defending the methodology used

• Explaining assumptions

• Responding to opposing experts

  
  

A qualified expert with litigation experience can be the difference between winning and losing a financial argument in court.

Real-World Examples

• Divorce Case – A small construction company was valued as part of a marital estate. The expert used normalized earnings and market comps to estimate value, helping avoid a protracted court battle.

• Shareholder Dispute – In a 50/50 partnership dispute, one partner alleged financial misconduct. A forensic valuation uncovered hidden distributions and misreported revenue, which shifted the case outcome.

• Contract Dispute – A professional services firm sued for breach of contract and lost future profits. A lost profits valuation supported the claim and helped secure a favorable settlement.

  
  

Common Mistakes to Avoid

Mistake: Using a CPA (someone without specific valuation credentials)

Fix: Hire a certified valuation analyst with litigation experience

Mistake: Waiting until trial is near to request a valuation

Fix: Involve the valuation expert early in the process

Mistake: Failing to provide full documentation

Fix: Be transparent—missing records damage credibility

Mistake: Relying on tax returns alone

Fix: Use a normalized earnings approach that reflects operational reality

Best Practices for Litigation Valuations

• Choose a qualified expert with courtroom experience

• Confirm the standard of value and valuation date early

• Document everything, especially owner compensation, perks, and related-party transactions

• Understand the role of the expert—they must be independent, even if hired by one side

• Prepare for testimony or rebuttals if your case goes to trial

  
  

Need Help with a Litigation Valuation?

At Development Theory, we specialize in high-stakes business valuations for divorce, litigation, and economic damages cases. Our expert reports are courtroom-ready—and built to stand up under cross-examination.

Book a Discovery Call today to protect your business interests in legal proceedings.