Standards of Value: Theory and Applications, 2nd Edition

Preface

We have all heard the expression, “Value lies in the eyes of the beholder” (a play on words from the expression, “Beauty lies in the eyes of the beholder”). We cannot imagine a sense in which this could be more true than in the value of a business or an interest in a business. Value has no meaning until it is defined. In the nomenclature of business valuation, these different definitions of value are called standards of value.

In some contexts, the standard of value is mandated by statute or regulations. For example, fair market value is the statutory standard of value for all federal gift, estate, and income taxes. Fair value is the mandated standard of value for financial reporting that is subject to regulation by the Securities and Exchange Commission. The expression fair value is also used as the standard of value in almost every state's statutes for dissenting and oppressed stockholder actions, but the definitions are very different from the definition of fair value for federally regulated financial reporting purposes and differ somewhat from state to state.

Even when the standard of value is statutorily defined, it leaves much room for interpretation in case law. Very few state statutes dealing with property settlements for divorce address any definition of a standard of value. Therefore, in the context of valuations for divorce, virtually all the guidance as to the accepted standard of value is found in the case law, which varies greatly from state to state and ...