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Business Valuation in Divorce

People often find that one of the most difficult aspect of going their separate ways is deciding how best to divide the marital assets and finances. Dividing one pot into two, whilst trying to ensure that each of your future housing and income needs are met, is by no means a straightforward task.

There are often several factors that need to be considered when looking at how best to fairly distribute your assets post separation/divorce. Our family solicitors have a wealth of experience in dealing with each aspect but for the remainder of this article, we will focus on one issue which often crops up and can be one of the most complex issues to deal with. This is how to fairly apply a business interest in divorce.

There might be a situation where there is a family business where both spouses are involved in its day to day running. This of course brings with it several practical difficulties as well as how to deal with the value of the business itself. Alternatively, one party might own a business, the income from which meets the majority of the family expenses. Whatever the circumstances, it is important that a business interest is fully considered during the early stages of financial disclosure and negotiations.

There are two main ways that a business interest can be approached in divorce. The first involves seeking to capitalise the value of the business in the assets whilst the second attempts to utilize the future business earnings.

Attributing a capital value to a business interest is often appropriate and necessary, but not always the correct approach. A business vale should be capable of realisation and not some unattainable figure to include in negotiations. Attributing a capital value to a business would be wholly unrealistic in circumstances where the value lies predominantly in the income it will provide. The delay and costs of instructing an expert to value the business in these circumstances would be wholly disproportionate. In these circumstances, the Court can instead Order that the income produced by the business should be utilised to continue to meet each of your future income needs for a time. This is dependent upon several factors to include but not limited to, the nature of the business, it’s available working capital and other available assets to meet capital needs.

If the business has a capital value that is capable of realisation, it might be necessary for an expert to be instructed to provide an opinion on the value of the business interest. This will usually be undertaken by an accountant instructed by both parties. Their valuation will be objective and impartial and will need to take into account a number of variables, to include the current economic climate and its unknown long-term impact upon businesses and their profitability.

It is vital that the instructions to any appointed expert make clear from the outset certain factors that need to be considered. This is paramount particularly in light of the uncertainties surrounding today’s economic climate. Your appointed expert should be asked to comment specifically on assumptions surrounding the potential long-term impact of Covid-19 as well as a no deal Brexit. There will also need to be careful consideration given to tax implications specifically surrounding Capital Gains Tax surrounding a sale or transfer and possible withdrawal of a lump sum from the business as well as other available options. You and your Solicitor should work closely together to ensure that the expert understands the business in question and that all relevant factors are advised upon within the report.

Business valuation in divorce can be complicated and if not dealt with properly can result in unnecessary delay and costs. Our family team at Morgan LaRoche Solicitors have a wealth of experience in dealing with complex business structures including but not limited to private limited companies and quasi partnerships ranging in value from very little to million-pound corporations.

All of our family solicitors are also members of Resolution and subscribe to a code of conduct committed to promoting a constructive approach to divorce and the division of matrimonial assets in a non-inflammatory manner. Our experienced team of family solicitors always aim to empower individuals during one of the most difficult times of their lives whilst always looking for the most constructive result in a cost-effective manner.

If you require any further advice or assistance on divorce or family matters, please contact either Cassie Greville or Nia Thomas for a free initial consultation of up to 30 minutes.