Opinion ID: 2379514
Heading Depth: 1
Heading Rank: 3

Heading: Formula Approach

Text: The other method of valuation used below was a formula approach based on Revenue Ruling 59-60, [4] devised by the IRS for valuing property for federal tax purposes. As we described it in Dugan, a formula approach requires a determination of income from the tangible assets, and subtraction of that income from the total income. The residual is capitalized and the balance is designated goodwill. 92 N.J. at 436. [5] The experts differed in their application of the formula in several respects. Plaintiff's accountant believed a return of 10% on fixed assets was appropriate, while defendant's held out for 12 1/2%. Both employed a capitalization rate of 20% (5 times return on intangibles) but disagreed over whether a 30% discount for defendant's minority interest should be applied. Plaintiff's expert said he built in a discount by not using a higher capitalization factor of 7 or 8. The parties also disagreed over whether the sale of one piece of machinery was to be considered an extraordinary income item and whether the earnings should be capitalized before or after taxes. [6] In resolving these issues, the court could consider the appointment of an independent expert to assist it. R. 5:3-3. We have emphasized the important role that court-appointed experts may play in resolving issues of technical complexity before a court. Southern Burlington Cty. NAACP v. Mount Laurel Tp., 92 N.J. 158, 292-93 (1983). We also recognize that it may be overbroad in cases of this magnitude to employ three expert witnesses, each of whom must be compensated, to arrive at fair value. But the Case Information Statement, R. 5:5-2 (eff. April 1, 1984), and other discovery methods can be used to narrow the issues so that a court will employ an independent expert to assist it only in evaluating the points of difference. We believe that method could be used here to fix the value after reliance upon an independent expert to resolve the differences expressed in employing Revenue Ruling 59-60. Naturally, the ultimate responsibility for disposition of the assets would remain with the Family Part. A fair and workable system of distribution still must be made. One of the problems below was that there was no liquid value for the husband's stock, and if it were ordered sold, the price would be fixed by the buy-sell agreement. Hence, defendant argued, there was no way to distribute the stock fairly. Perhaps, part of the defendant's share of the proceeds of the sale of the house could be used to make a down payment on the plaintiff's share of the corporate property with the balance being paid out over an extended period of time on terms the court may determine. The issue of alimony may have to be reviewed in light of the revised equitable distribution plan. See Painter v. Painter, 65 N.J. 196 (1974). In sum, we hold: (1) courts must arrive at a value for closely held corporate stock to effect equitable distribution of the asset to one spouse; (2) a comprehensive buy-sell agreement will provide presumptive evidence of such value; (3) opinions of value not based upon evidence in the record or of proven acceptance in the field should be given little weight; and (4) courts should employ independent experts under Rule 5:3-3 when necessary to resolve specific disagreements between the parties' experts. The judgment of the Appellate Division is reversed and the cause remanded to the trial court for further proceedings in accordance with this opinion. For reversal and remandment  Chief Justice WILENTZ and Justices CLIFFORD, SCHREIBER, POLLOCK, O'HERN and GARIBALDI  6. For affirmance  None.