I am unfortunately heading into a divorce and am very concerned about how a judge will go about putting a value on my share of my business. What is the process for establishing a valuation?
Adele Pledger, partner in family law at Withers in London, says heading into divorce is difficult at any point, but I understand your concerns about your business. Nuance is central to the family court’s search for a fair financial outcome for divorcing couples, but when it comes to valuing a company you need to be blunt: a number put down in black and white.
Much depends on how your business is structured. If you own shares in a private limited company, the court fully appreciates that valuations of such shares are difficult. First, there is likely to be no obvious market for the shares. Second, where there are two competing valuations, it is not unusual for widely differing results to arise. Third, by their nature, the profitability of private companies can be volatile — a snapshot can give an unfair picture. There are also likely to be liquidity issues and, naturally, the acid test of any valuation is exposure to the real market.
If court proceedings are necessary, an expert valuation may be ordered, but this will be no more than a broad guide for the court and not a detailed accounting exercise. The court may decide that discounts should be made to the value to reflect the reality on the ground. These can relate to issues of liquidity, minority shareholdings and other considerations. So you need to ensure that accurate and compelling valuation evidence is put before the court on your behalf.
But it is worth keeping in mind that the court does not simply take a crude presumption of 50:50 and split all assets, including the value of a business, down the middle; nor will the court necessarily order a sale of your shares. It looks at all of the circumstances and, in its computational phase, it distinguishes between matrimonial and non-matrimonial assets, depending on how assets have been treated and the extent to which they derive from endeavour during the marriage.
Matrimonial property is usually divided equally and non-matrimonial property is left alone, unless it is needed to meet the other party’s needs. Earning capacity is not an asset subject to the sharing principle.
Our next question
I’ve recently become engaged, and my partner and I have made a start on planning our dream wedding. We’re both set on a destination wedding, but we know that this requires extra admin and planning. What are the legal considerations that we need to bear in mind?
The court is keen to settle upon an outcome which provides both parties with a road to financial independence, but it does not follow that it is keen to break up and sell a business which has been both a capital and income vehicle for the family where other assets can be applied to satisfy the other spouse’s award.
And where other assets are not available, the court can consider a deferred sharing arrangement, whereby the court decides that business assets should be sold or realised some time in the future, and the proceeds divided in a determined percentage split rather than divided immediately.
The opinions in this column are intended for general information purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect result arising from any reliance placed on replies, including any loss, and exclude liability to the full extent.
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