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Business Valuation LLC Phone: 304 692 1385 Fax :304 599 7250 Email: bizvaluer@valuellc.com |
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Active and Passive Appreciation
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Active and Passive Appreciation in Divorce for Closely held Businesses The following five-step analysis is often used for a determination of the active and passive appreciation (1) whether the property, in general, is either separate or marital property;(2) placing a value on the non-marital property at the commencement of the action;(3) the value of the non-marital property, before it became subject to the active and passive appreciation analysis;(4) a calculation of the property's value at the commencement of the action, in relation to its value on the date (s) gifted or acquired ; and(5) a determination as to what extent the increase in the value of the non-marital property is active appreciation or passive appreciation.Quantitative analysis including multivariate regression provides a valuable tool for identifying economic factors that can explain the changes in value of the business interest. These factors may include the level of economic activity, interest rates, customer demographics, regulatory changes, and other similar factors. The R-square measure for the specified regression equation (model) measures the percentage of change in value that can be explained by these external factors and therefore considered passive appreciation not subject to distribution. It may be possible to exclude a substantial proportion of the growth in business value from the marital estate based on industry, period of analysis, and initial investment from non-marital resources. Business Valuation LLC can help to develop valuation models and illustrate the impact of these external factors on the change in value of the business for your clients. contact us. |