How is a business valued in a divorce?
Expert valuation is a vital part of establishing how the company and other business equity should be divided in a divorce financial settlement. Factors that indicate a professional valuation should be done include:
- Is the business likely to be sold in the future?
- Is there a big difference between the ‘modest’ profits generated (as shown in your spouse’s financial disclosure) and your standard of living as a married couple?
- Are there significant capital assets?
- Do you suspect the accounts do not show the full picture of the business?
- Does the business consist of complicated trusts and holding companies?
If the business is a sole trader or freelance model, it is unlikely a valuation will be required.
In valuing a business, your Solicitor may consider issues of liquidity and how money can be withdrawn from the business to fund a settlement or the extent to which the business provides income to meet ongoing periodical spousal maintenance payments.
Courts do not treat valuations as absolute; rather they are seen as a guide.
In what circumstances will the Court depart from equal sharing of the business?
In UK divorce law the starting point is that of equal sharing. However, the Courts must consider the factors listed in Section 25 of the Matrimonial Causes Act 1973 when making a Financial Order. For example, in the past, the Courts have adjusted awards where one spouse has made significant contributions post-separation towards increasing the value of a business before the sale (JB v MB [2015] EWHC 1846(Fam)). In another case, the Court awarded the wife 28.75% of the couple’s overall wealth because they had always kept their finances separate and the assets that grew during the marriage were predominantly the husband’s business assets (XW v XH [2017] EWFC 76).
The key point is that the Court has full discretion when making a Financial Order. Therefore, your representation is critical. Our family law team, led by Rakhi Singal, has years of experience representing high-net-worth clients in negotiations, mediations, and Court. Rakhi is also a well-regarded specialist in cases involving complex financial arrangements.
Can the Court order a transfer of shares?
Shares constitute property under section 24(1)(a) of the Matrimonial Causes Act 1973, and therefore the Court can order a transfer from one spouse to another. If you and your spouse become shareholders in a business post-divorce, our team will ensure a robust Shareholders’ Agreement is in place to prevent any party from improper conduct. If appropriate, our business team can also establish separate classes of shares for further protection.
Will the Court order the sale of the business?
It is extremely rare for the Court to order the sale of a business as it is often the sole source of family income. Instead, one party may receive greater equity in the family home or be given time to raise the cash to pay a lump sum to the other spouse.
By investigating all options available to you, we can advise on which one protects your best interests. We take the time to find out what success means to you and will work resolutely to achieve it.
