Valuing a Family Business in Divorce Proceedings

If you or your husband or wife owns or holds shares in a family business then the business may be the most valuable family asset. That is why divorce solicitors say it is crucial that the family business is valued accurately in divorce financial settlement court proceedings to achieve a fair settlement.

Online and London based family and divorce settlement solicitors

For advice about your best financial settlement options or representation in financial court proceedings call the specialist family law team at OTS Solicitors on 0203 959 9123 or complete our online enquiry form.

Valuing a family business in divorce proceedings

Unless you know how much something is worth you can't reach a fair financial settlement. Many business owners think that their business or their shareholding doesn’t need to be valued because they are going to keep it as part of their divorce financial settlement but unless you know the value of the business you can't offset the value against other assets, such as the equity in the family home, savings and investments or pensions.

The only time that you may not need a valuation is if, for example:

• You and your husband or wife are a fifty percent shareholders or you are equal partners and you both want to continue to run the business together, although with a new shareholder agreement or partnership agreement to protect your interests.
• You have set up a shell company that has no assets and is simply a tax efficient vehicle for freelance or consultancy income so the company has no good will value and no assets, other than the company bank account.
• You have set up a property investment company and the value of the company is the value of the properties owned by the company. In that scenario, getting formal property valuations and tax advice may be a better option.
• You have agreed a sale of shares to a third party and as part of the negotiations a comprehensive valuation was undertaken. You may need to be wary of this type of valuation. For example, if there are different classes of company shares in the company or a new development in products or IP after the valuation.
• You and your husband or wife entered into a prenuptial agreement or postnuptial agreement that ringfenced the family business from the divorce financial settlement and there are sufficient other non-business assets from which needs can be met.
• You have only been married for a short period and there was no pre-marriage cohabitation and no children from the marriage and needs can be met from non-business assets.

Should the company accountant value the family business

It is often natural for one party to a marriage or civil partnership to want the company accountant to value the business and for the other spouse to want to ask their own accountant to do so. A company accountant will undoubtedly know the business well but there is a danger that a husband or wife will think the company accountant is biased. Therefore, however realistic the company accountant’s valuation is, they won't want to negotiate and agree on a financial settlement because they don’t trust the business valuation.

If representations are made in financial settlement court proceedings, the court will usually appoint a single joint expert, who is an expert in forensic accountancy, to value the business. The expert will be sent instructions jointly by the solicitors for both husband and wife and the expert will prepare an independent and impartial report.

How to value a family business

How you value a family business will depend on the nature of the company and its asset structure. Whichever valuation method is chosen it is important that the accountant looks at the net valuation. In other words, after tax on sale of a business or shareholding are taken into account.

The valuation method will be chosen by the accountant but could be:

• A net book valuation – this type of valuation may be appropriate where there are company assets but limited active trading.
• Maintainable earnings – this method values the company based on its income yield. This type of valuation may be more appropriate for an office based professional company where there are limited physical assets but a historic income stream.

An accountant can also be asked to look at other areas, such as movements in a directors loan account or, in the case of a cash business, invoice practices. The remit of any instructions to a single joint expert accountant needs to be agreed in a joint letter of instruction but getting an accountant to check out concerns about money disappearing or not being declared can result in a husband or wife then having the confidence to reach a financial settlement because their concerns have been considered by the accountant.

When it comes to divorce and the family business it is important to use a specialist family law solicitor who has the experience and expertise to guide you through the financial settlement negotiations and provide robust representation in any court proceedings to help you reach a financial settlement that is fair and meets your needs.

An overall financial settlement

It is important to remember that a family business is normally only one asset and that a financial settlement could be achieved through a property transfer order, pension sharing order or spousal maintenance order. In most cases, a family business is not sold but it does need to be accurately valued so divorce solicitors can help you work out what would amount to a fair financial settlement in your particular personal and financial  circumstances.

Online and London based family and divorce financial settlement solicitors

For advice on financial settlements involving a family business or representation in financial court  proceedings call the specialist family law team at OTS Solicitors on 0203 959 9123 or complete our online enquiry form.