Divorce and the family business – why independent valuations matter

For many business owners, the wealth they create is closely linked to the financial security of their family. And that can have significant implications when a relationship breaks down. During divorce or separation proceedings, establishing the value of a business is often a crucial step in understanding the marital asset pool and helping both parties reach a fair financial settlement.

Divorce is, of course, a deeply personal matter. But where a business is involved, it can quickly become a commercial issue too. Establishing how much a business is worth, the wealth it has generated, and what it might be worth in the future regularly presents significant challenges.

What is the business really worth?

A successful business is likely to be singularly the most valuable asset considered during divorce proceedings. However, valuing a privately-owned business when agreeing divorce settlements is rarely straightforward and is very different to valuing a business for sale or external investment. An independent valuation helps establish the marital asset pool, determine the value of each party’s interest, assess future income potential and provide a reliable basis for negotiations between the parties.

Shares held in a private limited company rarely have any obvious indications of market value, unless a recent share transaction or company acquisition has occurred. Determining the value of the company will depend on many different factors including profitability, assets, future maintainable earnings and ownership structure.

In addition to valuing the business, it is often necessary to consider when and by whom that value was created – whether it was before or during marriage and whether the spouse played a part in the business’s growth.

Future value may also need to be taken into account, which can be a particularly contentious issue in divorce settlements and one that may leave business owners exposed. For example, failing to disclose plans for a future sale, refinancing or stock market flotation could result in a settlement being challenged or revisited at a later date.

Then there is the important distinction between the value of the business on paper and the cash available to fund a divorce settlement. Business value may be tied up in assets (rental or development property, for example) or in working capital or funds critical to future investment. Extracting funds from the business could have a significant impact on the business’s financial stability and future growth. Taxes arising on any potential transfer or sale of shares also need to be considered.

The role of an independent valuer in divorce proceedings

Family lawyers and the courts will often appoint an independent valuation expert to conduct a business valuation on a joint basis, known as a Single Joint Expert. It is also common for each party to instruct their own adviser, often referred to as a Shadow Expert, to review and challenge the findings of the Single Joint Expert where appropriate.

Kreston Reeves has a specialist valuations team that can work alongside lawyers and their clients, either as a Single Joint Expert or as a Shadow Expert. We provide expert support in both court and non-court settings, helping clients understand the value of their business interests, make informed decisions and work towards fair outcomes for all parties.

Contact us today if you would like assistance from one of our experts.