News

Henry Hood examines the valuation of businesses on divorce

  • June 24, 2020
  • By Henry Hood, Partner

Valuing businesses on divorce

Henry Hood, Partner and Head of the Family Department

A key part of the process of negotiating a financial settlement on divorce is assessing the value of the parties’ assets. This can be particularly challenging where one party owns, or has an interest in, a business. Like any other asset, that interest will need to be valued.

Unless the business, or the interest held in it, is to be sold, the valuation would be the expression of opinion by a qualified valuer as to the amount a hypothetical purchaser would pay for it. The valuer, often a forensic accountant, would normally be selected jointly by the parties, and instructed by them both.  Sometimes each party will wish to instruct a “shadow expert” to assist them in considering the expert’s report.

The appropriate approach to valuation will depend on the type of business and the valuer’s preference.

The Net Asset Value approach might be taken where the business’s value lies in its asset base rather than its turnover, such as a property holding company. In such a case, the broad approach would be to value the asset base, less any debt.

The other broad approach, of which there are different versions, is to value the business as a going concern based on the repeatable income that a purchaser might acquire. This is suitable where there are fewer fixed assets of note. Such valuations are both fragile and arguable because they seek to foretell the future. The first step is to identify the repeatable earnings by looking past years and making any necessary adjustments. This figure is then subjected to a multiplier, which depends on the market sector and factors relating to the business itself. Both elements may be subject to debate.

The costs and tax consequences of sale or other disposal will then always need to be factored in, whichever valuation approach is adopted.

Where the relevant business interest is less than 50% of the business, a discount may be appropriate to reflect the lack of management control and difficulty in selling a minority interest. However, where the other owners are close family members this may not be applicable. That can be another significant area of argument.

As will be clear, a formal valuation in divorce proceedings is a significant undertaking. It is therefore important that the scope of the instructions to the valuer, and the information provided to them, are proportionate and accurate, and that the valuer is carefully selected.

For personal advice on this or related issues contact Henry Hood on 020 7412 0050 or Henry.Hood@hunterslaw.com.


Related News

Sep 15, 2021
Henry Hood recognised in the Citywealth Leaders List Top 100 Private Client Lawyers 2021
Sep 14, 2021
Hunters recognised as one of the 2021 eprivateclient Top Family Law Firms
Sep 06, 2021
Hunters Law shortlisted at the Family Law Awards 2021
Aug 02, 2021
Henry Hood examines the Thwaite jurisdiction where a client seeks adjustment of a financial remedy order in The Review
Jul 29, 2021
Eri Horrocks discusses what happens to the children when separated parents differ on relocating in WealthBriefing
Jul 28, 2021
Eri Horrocks discusses a practical guide to emergency private children cases in The Review
Jul 27, 2021
Eri Horrocks discusses what separated parents wanting to relocate within the UK need to know in Family Law Week
Jul 22, 2021
Hunters’ success in the Chambers HNW 2021 Guide
Jul 12, 2021
Jo Carr-West and Lara Barton discuss recent recommendations that would assist divorcing couples in managing the CGT implications of separating their financial affairs in Family Law Week
Jul 07, 2021
Hunters’ success in the 2021 Spear’s Family Law Index

© Hunters Law LLP 2021 | Privacy NoticeLegal & Regulatory | Cookies Policy | Complaints Procedure.

Hunters Law LLP is authorised and regulated by the Solicitors Regulation Authority (number 657218)