Fall 2015, Issue 4

What Makes Your Family Law Forensic Accounting Expert Credible?

Two experts testify, yet the court may decide one expert is more credible than the other. What makes an expert more credible in the eyes of the family law court?

There is much information and many articles discussing various aspects of what makes a testifying expert credible. Factors such as maintaining persuasive nonverbal communication, having applicable professional credentials, qualifying as an expert, etc., are not the point of this article. The authors are assuming the targeted audience (certified family law specialists) reading this know how to choose their experts, including their family law forensic accountants. This article brings to focus a recent family law appellate case as an example and highlights the value of having a credible family law forensic accountant. As experienced family law forensic accountants themselves, the authors put forth here their perceptions of the wants and needs of family law judicial officers. This will differ from the attitude of angry or demanding clients going through a tough life transition; they often want their expert witness to be their advocate “fighting for them”. The credible expert and savvy attorney know to explain that the role of the expert is to remain unbiased and to educate the family law judicial officer, not advocate legal positions.

First, let’s address the basics. An expert witness plays a critical role in communicating their findings to the court. The analysis should produce a comprehensive, well-reasoned, and fact-based written declaration or report that effectively tells the story the expert wants to convey to the court, such as narrating relevant background information, data analyzed, conclusions reached, opposing expert agreements or disagreements (if known), and other relevant information. From the outset, the work performed will be scrutinized and it is the expert’s task to demonstrate that their opinion and testimony is based upon a reliable foundation.

Now, let’s turn our attention to a recent appellate case, In Re Marriage of Honer. [In Re Marriage of Honer (2015) 236 Cal.App.4th 687]. This involved valuing two grocery stores in a long-term marriage. Valuation of a family business is arguably the most subjective area in which family law forensic accountants express their opinions. Valuation is “part art, part science.” It serves to study this case from the point of view of: who was the more credible expert? In the Honer case, one expert was successful based on the court’s perception of his credibility. Studying the court’s reasoning, and insights are revealed to improve expert’s case presentations.

The trial court affirmed in Honer. choosing one expert’s opinion over the other—and identified a few reasons for its determination. The more credible expert had interviewed the management of the business and the other had not. This gave the expert knowledge of the operations of the specialty grocery businesses, including the management’s strengths and weaknesses, and provided a more accurate picture of the commitment by managers in the growth and success of their investment. Interviewing relevant persons increases credibility. It is a necessary procedural step to both the layperson and credible expert. In reality, nobody would actually purchase a business without interviewing management to learn about its specificities. If interviewing is not possible for the credible expert, it should be discussed why it was not performed in the case presentation.

Increased credibility can be gained from following industry-established standards and, at the same time being able to introduce the court to generally accepted business valuation terminology that may not have been previously published in prior case opinions. For instance, the expert in Honer correctly defined the proper standard of valuation in California marital dissolution cases as “marital value” as “the economic value of the business to the spouse retaining it, and who will continue to operate it in the future.” Experienced valuation experts are aware that the way the California family law courts have been using business valuation terms such as “investment value” or “fair market value” has arguably been inconsistent with these terms’ definitions in professional literature. The attorney unsuccessfully challenged the expert’s credibility based on the use of this term. One infers that the expert did an excellent job educating the court that his conclusions were not inconsistent with case law, explaining his valuation work complied with professional standards on cross-examination. The trial court determined the expert was credible.

A credible expert should avoid any perception of a conflict of interest. The court expects an unbiased approach from a credible expert. This challenged the wife’s expert in the Honer case as he was engaged in a related business—arguably testifying on behalf of a potential future client. Wife’s expert’s employer was directly involved in the acquisitions of grocery stores and could be a potential broker to facilitate a sale of the business if necessary. This created concern for the court that the expert was biased as to its value. The court disagreed with the expert’s conclusion that the best way to value the business would be to expose it to the market or offer it for sale. Further, the expert had not provided evidence of potential costs of sale and income tax consequences if sold.

Finally, the Honer trial court preferred the credible expert’s opinion, which did not advocate for the businesses to be sold, as it was the income source for husband’s ability to earn a living and pay support, benefiting both parties. The court noted that family businesses “do not simply represent an investment of capital; they are also an investment of sweat, toil, worry and hopes.” Knowing the context in which the expert is testifying improves credibility.

Practical tips to consider:

  • A credible expert seeks to minimize or prioritize differences with the opposing expert, if given the opportunity. This saves court time and helps attorneys focus their respective case presentations.
  • A credible expert seeks to steer attorneys and clients away from spending time and efforts on financially immaterial or less relevant issues. Being once removed from the client (relative to the attorney) the expert may be able to assist in lowering the conflict and financial expectations surrounding emotionally charged issues.
  • A credible expert acknowledges unfavorable facts, concedes obvious points, and does not dispute every fact.
  • A credible expert defends his/her opinions and does not advocate the client’s positions.
  • A credible expert is unbiased, trustworthy, competent, and likable.
  • A credible expert is a trusted advisor to the client’s team whom may objectively provide input as to certain aspects of their client’s case strengths and weaknesses.
  • Two credible experts’ findings should be within a range of reasonableness respective to each other in most cases with same set of facts. Legal positions may widen differences.
  • A credible expert seeks to maximize the use of “in the hallway” time while waiting for the court. This may mean assisting with settlement or refining court presentation with the attorney.
  • In family law, credible experts should seek to minimize conflicts. Our clients are not large corporations; many times they are vulnerable families in turmoil. Doing our part to lessen the burden on our court system is a worthwhile goal. ■