How businesses are valued for the purposes of divorce

When a marriage ends, the separating partners must agree how to split their assets – and this includes those relating to a business. Here’s how it works.

Why is a business valuation carried out for divorce?

In theory, it’s possible for one partner to tell the other how much their business is worth, and for the other to accept it. In practice, this hardly ever happens – and usually a business valuer will be appointed to accurately calculate the value of the business and the shares held within it.

If you are the sole shareholder, you will be the one to arrange the valuation. If you and your spouse own aa business together then this responsibility could fall to either of you – but you should both agree on who the advisor is.

What factors are considered when a business is valued for divorce?

Business valuations are a thorough process designed to build as accurate a picture of the position as possible. Factors used to determine its worth may include:

• Asset valuation – an assessment of what the business owns and how much it is worth
• Cash flow and forecasts
• The amount that other, similar businesses have recently sold for
• Risks, such as a declining market for the business’s products or services, or wider economic conditions

What happen if a divorcing couple can’t agree on the value of a business?

You should try to agree, if at all possible. When it comes to divorce, the more you agree, the less it will cost you to sort everything out, the less time you will spend, and the less emotional stress you will suffer.

However, it can happen that one partner believes the other is undervaluing their business, and nothing can reassure them. In this scenario, options include:

• Mediation or other dispute resolution methods that don’t involve going to court
• A legal advisor can look at the company’s accounts to see if there is a potential issue
• An expert – known as a ‘single joint expert’ can be appointed to provide an impartial valuation
• Both parties could appoint their own advisors
• Court, where an impartial expert may advise a judge before a binding decision is made

Who will end up owning the business?

As a very broad rule, in cases where one of the separating couple is the business owner, the courts will tend to leave it with them. It will then come down to deciding how much the business is worth so their spouse can be provided for in other ways – such as cash or property.

The courts will be guided by what the couple themselves want, and can agree on. This may mean an agreement where future income from the business is shared, or the non-owning partner is given shares, for instance. As with all aspects of divorce, if a marriage is coming to an end, it’s best to discuss as early as possible how the business could be valued and its future ownership decided upon.

The Thrings Family Team the team supports couples, families and business through a wide range of services including pre-nuptial agreements, divorce and separation and mediation. Find out more here.