01Why a valuation is needed
Where either spouse owns a business, its value is part of the financial picture the parties, their lawyers and the court must consider. Because private businesses have no market price, an expert valuation is often needed, either to support negotiation or because the court directs it in financial remedy proceedings.
02How the valuation works
Most owner-managed trading businesses are valued on their maintainable earnings. Profits are adjusted for one-off items and, importantly, for the difference between what the owner takes from the business and a market salary for their role. A multiple reflecting risk and prospects is applied, and balance sheet items such as surplus cash and debt are taken into account to reach the value of the shares.
Investment businesses, which mainly hold assets such as property, are usually valued closer to their net assets.
03Minority holdings and family businesses
Where the spouse holds only part of a company, perhaps alongside other family members, the value of their holding may be affected by their lack of control and the difficulty of selling it. How this is treated depends on the facts and the instructions.
04Value and cash
A valuation of shares in a private company does not create cash. Extracting value may be slow, may require selling the business or borrowing, and may give rise to tax. Experts are often asked to comment on liquidity and extraction alongside value, so the court can consider what resources are realistically available.
05Single Joint Experts
In many cases one expert is jointly instructed by both parties, which reduces cost and duplication. The expert's duty is to the court, communications are shared with both parties, and either party may put written questions to clarify the report.
06What the valuation does not decide
The valuation establishes what the business interest is worth on a stated basis and date. How the assets are divided is decided by the parties or the court, applying principles of fairness that consider much more than the valuation figure.
This guide is general information, not advice on any particular situation. The correct approach to a valuation depends on its purpose, the basis of value and the facts.
