Valuing Your Business During a Divorce

Tindall Gask Bentley Partner and Accredited Family Law Specialist Wendy Barry writes about the complex task of determining the value of a business in a property settlement.

When relationships break down and the process of dividing property gets underway, there will usually be several types of assets to deal with. This includes ‘real property’ such as the matrimonial home, and other forms of property such as motor vehicles, shares, bank accounts, furniture and effects.

Like any of these, a business is also another form of property and determining its value can be complicated. This is because the party who wants to keep the business will generally under value it or claim that he or she is the only value in the business and if they weren’t involved it would have no value at all. The opposing party, who has had little to do with the business, will often underestimate the importance of it, have a grossly inflated idea of its value, or massively undervalue it. Due to their lack of involvement, they realistically do not know what the business is truly worth.

Some may attempt to assess the value of a business based purely on the evidence of ongoing contracts, and while it can be tempting to say “there is no good will” in the absence of these contracts, this isn’t necessarily the case. This is why an expert valuation is required to assess the true value of the business.

Businesses can also be used to hide money. If one of the parties retains the business it can become tricky because they can potentially manipulate their income, sometimes through increased expenses, to dramatically reduce child support payment obligations.

Loan accounts should also be assessed because there can either money that you owe on the business or money owed to you.

Even if a business may not be valuable to sell, it can still be a valuable asset because it is likely to deliver an income.

For example, I am currently working on a property settlement where a husband has a large portfolio of shares through an employee share program. Those shares deliver an enormously valuable income stream. At the moment, the wife wants to sell those shares. This is a very short-sighted approach because she is effectively killing the goose that lays the golden egg. As soon as those shares are sold, the income stream is gone. This is where the evaluation difficulty lies. Do you value the shares at the present selling price or do you value according to the future income that the shares are expected to deliver?

This shows how complex the process of valuing property is and how important it is to seek expert advice. The family lawyer will generally work closely with a forensic accountant to make these assessments. These accountants will also be prepared to give evidence in Court if required.

If there is a business involved in a divorce settlement, get it valued. It is something that both parties should look in to as soon as the divorce process begins. It is expensive but a worthwhile and important cost shared by the separating individuals.

If one of the husband or the wife goes off on their own and has the business valued, it is not only a major expense but a risk because the other party may raise concerns about not being involved in the process and question the legitimacy and transparency of it.

This blog merely scratches the surface of an extremely complex aspect of family law. If you need advice about your property settlement, feel free to contact me.

For further information or assistance with your legal matter contact your nearest TGB office.