If you or your former spouse owns a business, it will likely be one of the most valuable, and contested, assets in your divorce. In England and Wales, companies built, or grown, during marriage are typically included in the matrimonial pot, but determining their true worth is rarely straightforward.
Business valuation for divorce involves complex methodologies from qualified experts, with outcomes that can make or break your financial settlement. In this guide, we’ll examine who conducts these valuations, the methods they use, factors affecting the final figure, and what you can do when both sides disagree with the numbers.
Why Is an Accurate Business Valuation for Divorce So Important?
When a business is one of your matrimonial assets, getting the valuation right could equate to thousands — if not millions — of pounds in your final settlement. Whether you’re seeking your fair share of a company built during marriage, or you’re a business owner aiming to protect your legacy, business valuation for divorce can affect the outcome of your case and the future of the enterprise.
In England and Wales, the court aims for a fair division of matrimonial assets and debts, and, if it was built during the marriage, a business in divorce is often included in the overall pot. An undervaluation at this stage would mean the non-business owning spouse potentially walking away with far less than they’re entitled to. Meanwhile, an overvaluation could potentially force the main business owner to pay a premium to buy out their spouse at a massively inflated price, effectively penalising them for their work and investment. This burden could have a serious knock-on effect to both the individuals’ finances and the company itself.
Clearly, the stakes are high for both parties. For non-business-owning spouses, you need confidence that the genuine value isn’t being concealed. If you’re the owner, you’ll want to ensure the business valuation in divorce doesn’t damage what you’ve spent years building up.
Ultimately, the courts rely heavily on expert evidence, so getting the right valuation — and the ideal expert — is a critical step in protecting your financial best interests.
Who Conducts a Business Valuation for Divorce?
Business valuations for divorce cases are usually carried out by forensic accountants or business valuation experts with specific experience in matrimonial finance. These aren’t standard accountants, they bring specialist expertise in family law proceedings in order to understand how courts assess business assets and bring an ability to withstand cross-examination should your case go to a final hearing.
The expert you choose could matter enormously. In England and Wales, valuation experts typically hold qualifications such as:
- Chartered Accountants (ACA/FCA) with forensic or valuation specialisms.
- Certified Fraud Examiners (CFE).
- Members of professional bodies like the Institute of Chartered Accountants in England and Wales (ICAEW).
Your solicitor will usually recommend experts they’ve worked with before, specifically naming professionals who they know can produce robust, court-ready reports and defend their methodologies under scrutiny. It’s important to note that the expert’s role is to provide an independent, objective valuation, and not to advocate for either spouse. Their primary duty is to the court, even though usually both parties typically instruct and pay them from the outset.
Do We Need Separate Valuations or Can We Use a Single Joint Expert?
You have two main options here: one is to instruct a Single Joint Expert (SJE) that both parties share. The other is to each obtain your own independent valuations. The ‘right’ choice depends on the complexity of your case, the level of trust between you and your spouse, and whether you’re concerned about concealed value or manipulation of figures.
Single Joint Experts are increasingly common in divorce cases involving business and divorce disputes. Both parties jointly instruct the same third party, they share the cost of this equally, and receive a single valuation report. This approach is widely regarded as being faster and more cost-effective, which is why it’s often encouraged by courts to reduce conflict, timescales, and expenses. However, you both need to agree on which expert to instruct, and once appointed, you’re generally bound by their findings unless you can demonstrate serious flaws.
Separate valuations rarely make sense as it is unlikely that both parties are going to agree with the other person’s expert evidence. Therefore, the courts prefer to work with a SJE 9 times out of 10.
When there’s significant distrust or concerns about assets being hidden, transferred, or disposed of it is common practice to use a shadow accountant to assess the SJE’s report for any inconsistencies or major holes.
The downside? Having a totally separate valuation, or using a shadow accountant, comes at double the cost.
What Does a Business Valuation Cost?
The cost of a business valuation in divorce varies according to the size and complexity of the business. However, you can expect to pay between £5,000 to £10,000 for a comprehensive report. Smaller businesses with straightforward finances occupy the lower end of the scale, while complex corporate structures, multiple revenue streams, or international operations push costs higher.
SJEs are more cost-effective, as you’re basically splitting the fee equally with your former spouse. Alternatively, if you each instruct separate experts, you’re looking at double the expense.
Beyond the initial valuation report, you should factor in additional costs if your expert — or shadow expert — needs to review the other side’s findings, prepare rebuttals, or give evidence in court. These extras can soon add thousands of pounds, but, especially in high net worth cases (where businesses may be worth millions), getting the valuation right is an investment that far outweighs the possible cost of getting it wrong.
How is a Business Valued? The Different Valuation Methods Explained
There’s no single formula for valuing a business in divorce; the ‘right’ method depends on the type of business, its profitability, assets, and the wider market conditions. Forensic accountants typically use one or more of these approaches in combination to reach a fair figure for business and divorce settlements.
- Asset-based Valuation: Calculates the net value of the company’s tangible assets (i.e. property, equipment, stock) minus its liabilities. This works well for asset-heavy businesses but might undervalue those whose main worth comes from their reputation, client relationships, or intellectual property.
- Earnings-based Valuation: Looks at historical profits and applies a multiplier based on industry norms. This is common for profitable trading businesses and professional practices. The expert will assess sustainable earnings, strip out one-off costs, and adjust for owner drawings that exceed a reasonable salary.
- Market-based Valuation: Compares your business to similar companies recently sold in the market. This approach works well when comparable sales data exists, but can be challenging for unique or niche businesses.
- Discounted Cash Flow (DCF): Projects future earnings and discounts them to present value. This is commonly used for businesses with predictable revenue streams, although it requires assumptions about growth, risk, and market conditions that may be contested.
What Factors Affect the Valuation?
Even when using the exact same valuation method, two experts can reach different figures, depending on how they assess certain key factors. Understanding what influences the valuation helps you anticipate disputes and prepare your case.
Goodwill is often the biggest battleground. Personal goodwill, meaning the value tied directly to the business owner’s reputation, skills, or relationships, may not be divisible. However, business goodwill, meaning its brand recognition and loyalty, its systems, existing customer base, etc. is typically included. If you’re a surgeon, barrister, or consultant who works in a field where clients come to you personally, this distinction can be crucial.
Market conditions at the valuation date impact what a willing buyer would pay. A family business that is thriving in a booming sector will be valued higher than an identical business in a declining market. The likes of economic uncertainty, interest rates, and other industry-specific factors all play a role here.
Business structure and dependencies also matter. For instance, is the business highly dependent on the owner’s involvement, or could it run without them? Are there key person risks (where the business is overly reliant on one person), contract dependencies, or succession issues that affect long-term viability? These characteristics will all affect the final valuation.
Finally, even the valuation date itself can be contentious. Courts typically value assets around the final hearing, but significant changes between the beginning of the separation and the hearing could lead to arguments about whether the changing circumstances are genuine or have been manufactured or exaggerated to deflate the valuation and deprive a spouse of their fair share.
What Happens if We Disagree About the Valuation?
Disagreements over business valuation for divorce are common, especially in high net worth cases where the figure could run into the millions of pounds. If you can’t accept the valuation, whether you think it’s too high or too low, you do have options, but each one comes with its own costs and considerations.
If you instruct a SJE and dispute their findings, you can ask the court for permission to hire your own expert to challenge the report. The court will only allow this if you can demonstrate a credible basis for the challenge. In short, you can’t simply disagree because you don’t like the number. You’ll need to be able to point towards flawed methodology, missed or overlooked evidence, or other significant errors in the expert’s assumptions.
If you have both obtained separate valuations that differ significantly, your solicitors will typically try to narrow the gap through negotiation. Experts can be asked to meet, discuss their differences, and either agree on key points, or at least clarify where they diverge. This “without prejudice” discussion often revolves around disputes without going to court.
If agreement still isn’t possible, the case will proceed to a final hearing where both experts give evidence and face cross-examination. The judge will decide which valuation to accept, or may land somewhere in between. Note, this option is both expensive and unpredictable, which is why most business and divorce disputes aim to settle before reaching this point and why instructing a SJE is the most popular route.
FAQS About Business Valuation For Divorce
Q: What is the 70/30 rule in divorce? A: Contrary to popular misconceptions, there is no such thing as an automatic 70/30 split in divorce. There is no simple formula for dividing assets, the courts can choose to share assets in any way they see fit to ensure a fair outcome for everyone.
Q: Is my ex-spouse entitled to half my business in a divorce? A: No, there is no automatic entitlement when it comes to business and divorce. If a business is classed as being matrimonial it could be divided, but the end result depends upon there being sufficient alternative assets to achieve a fair split (or offset against).
Q: What are the three C’s of divorce? A: Cooperation, communication, and compromise are often seen as being the three c’s of divorce.
Q: How can I protect my business in divorce? Protecting a business in divorce can sometimes be achieved using nuptial agreements or trusts (ideally before separation becomes a possibility). However, you should consult with a family lawyer to ensure that both parties are aware of what they’re getting into and that everyone is being financially transparent.
Q: What assets cannot be split in a divorce in the UK? A: Only assets that are classified as being non-matrimonial stand a chance of not being divided. This is not a hard and fast rule. However, the courts will consider a range of possible approaches to ensure that a division is fair. Essentially few, if any, assets can be completely discounted.
Q: Is the inheritance ring fenced in divorce? A: No, very few assets can ever be considered completely ring-fenced, including an inheritance. However, if the matrimonial pot is large enough to cater to everyone’s needs, the argument to ring fence inheritance is much stronger. The courts will consider factors like timing and length of the marriage, but they could choose to divide any asset, if it’s the only way to reach a truly fair settlement.
Protect Your Financial Future with an Expert in Business and Divorce
Getting an accurate business valuation for divorce isn’t just about fairness. It’s also about protecting your financial future. Whether you’re a business owner concerned about preserving what you’ve built, or a non-working spouse who wants to receive your fair share, the quality of your valuation expert and the strength of your legal representation plays a huge role in the outcome. Understanding the process, knowing when to challenge figures, and having experienced solicitors who know how to navigate complex financial disputes makes all the difference in high net worth cases.
At Lowry Legal, we have expertise in the most complex types of divorce and are recognised as one of the leading family law firms in the North West of England. Our team understands the complexities of business and divorce cases and works closely with experienced third parties like forensic accountants to ensure robust valuations that stand up to scrutiny.
Contact us today to arrange your free consultation and discuss how we can help you achieve the best possible outcome.
