Valuing a business during divorce is normally the last thing couples want to think about when going through an emotionally charged period. When our divorce solicitors meet with couples who want to divorce or dissolve their marriage or civil partnership, there is usually a financial dispute between them involving most commonly property or, to a lesser extent, a business.
When a business is involved, many people don’t know how to value a business, let alone understand how much of it should go to their to-be-ex-partner. However, the business must be valued not least to protect your interests, but also in order to reach a financial remedy between the parties. If the business is incorrectly valued or undervalued, your spouse may have cause to alter the financial consent order at a later date. This is why many business owners facing divorce will choose to instruct a divorce solicitor.
How to Value a Business in Divorce Proceedings
Our divorce solicitors have years of experience with valuing businesses during divorce. Typically, a business is valued in financial dispute proceedings when an outside expert is brought in and instructed to value said business. The expert will essentially look to break down the business into two valuations: its capital assets, or the value of everything the business owns and its cash held, and its operational income, which is broadly the ongoing cash flow of the business.
First, the expert will consider the business’ capital assets and whether the business is easily able to convert assets into cash without a significant loss in their value.
To ascertain this, the expert will look at how readily assets can be bought and sold in the market without impacting on their price, while also bearing in mind the volatility in the marketplace around that type of asset. The expert will also look at how money held by the business can be taken to settle the financial dispute between the parties.
If our divorce solicitors identify that capital assets cannot reasonably be used to settle the financial dispute, the expert is then instructed to look at operational income and assess if periodic payments can be made to the other party.
There may be tax implications in taking money from a business to settle a financial dispute in family proceedings and our divorce solicitors will advise if this is the case.
How to Choose an Expert
There are many ways that couples decide on an expert to value a business during divorce, and it’s important that both parties come to an agreement about the valuation. Most commonly these are:
- Asking an expert divorce or commercial law solicitor to value the business based on its capital assets and operational income
- Agreeing with your partner to appoint a single joint expert who acts independently on both of your behalves to value the business
- Each partner appointing their own expert to come in and value the business
And, to a lesser extent:
- Exploring alternative dispute resolution, such as mediation, to value the business.
Care should be taken when using alternative dispute resolution to value a business during divorce as not all forms are legally binding, and could lead to an incorrect valuation of the business.
If your divorce isn’t amicable, the reality of valuing your business is that unless both parties jointly agree to an independent expert, both sides will likely appoint an expert who is biased to their needs. Britton and Time’s divorce solicitors will help you understand what is reasonable based on both experts’ reports.
Each method of valuing a business during divorce has its own merits, and our divorce solicitors will advise you on the best way forward for your circumstances. Once the valuations are complete, they will normally be included in a financial consent order and presented to the family court for approval.
How Can the Family Court Help in Valuing a Business During Divorce?
The role of the family court in valuing a business during divorce is slightly different to that of the expert. While the expert focuses on valuing the business as a whole, the family court focuses on how the valuation fits in to the wider financial order, how it should be split, and whether the split is fair.
You should always remember that the family court’s interests are focused on reaching a fair and objective settlement, and ensuring that any children are looked after. They will not be interested in why the marriage broke down, unless domestic violence was involved.
How Does the Court Treat Business Valuations During Divorce?
From experience, our divorce solicitors know the court will first want to use the most up-to-date valuation. This is required in all financial dispute resolution proceedings which is why divorce solicitors will seek the valuation to be conducted as close to a hearing as possible.
Our divorce solicitors have seen cases where one party seeks to devalue the business at the last minute to reduce the amount awarded to the other party. If this happens, we can seek historic valuations of the business to assist the court and to see what the business value was at the time of separation.
When parties in financial dispute proceedings seek historic valuations, divorce solicitors will advise on the additional costs in obtaining such expert evidence for a final hearing.
How Do the Courts Use Business Valuations?
When valuing a business during divorce, the court will treat any business valuations as a guide rather than an accurate reflection of the business valuation.
There have been cases where the family courts have said that business valuation evidence, even by single jointly instructed experts, are speculative.
And Britton and Time Solicitors in Brighton and Hove have been involved in cases where valuations have been proved wrong by subsequent offers of sale, by both undervaluing and overvaluing the business.
In 2008, there was a case for financial settlement where a judge relied on a valuation of £700,000 for the shares in a particular business. Later, those same shares were sold for £2.8 million.
Conversely, in an earlier case in 2006, a business was sold £437 million when only months before the court had used an expert valuation that valued the company between £4 million and £20 million.
Britton and Time’s divorce solicitors can advise clients on the likelihood of success in challenging past court’s decision.
Contact Britton and Time’s Divorce Solicitors Now
If you need a divorce solicitor in Brighton and Hove, then click here to contact us now or call 24 hours a day, 7 days a week on 01273 726951 to speak to one of our divorce solicitors. We are also able to give independent legal advice on any financial remedy consent orders reached.