Business Valuations in the context of divorce

In some financial remedy cases where we act for a party who owns a business, we often consider involving an accountant during the financial remedy process. Particularly in circumstances where there is a family owned company, the court must establish the value of the parties’ interests in the company and decide how that value should be reflected in the final distribution of assets between the husband and the wife.

In some cases, it is best to involve an accountant at an early stage when drafting the Form E. The Form E does not actually require a formal business valuation. In most cases an estimate based on the most recent company accounts is sufficient for the purposes of Form E but in more complex situations it can be beneficial to have an accountant’s input at this early stage.
If there is a dispute between the parties as to the value of the business in question, it is likely that one party will ask the court to make an order that an independent expert accountant should be appointed to provide a report on the company’s value. There are various methods for valuing a company or limited liability partnership (LLP).

There are some cases where a business valuation will not assist the court. This includes situations where a business deals mainly in cash and where any forensic examination of the paperwork will not show what has happened to that cash.

There are other cases where the value of a business is theoretical. In the recent case of Cooper Hohn v Hohn [2014] EWCA 896, Mr Justice Coleridge refused the wife’s application for permission to adduce expert evidence about the value of management entities through which the husband received an income stream for managing a hedge fund. The income stream depended on the husband’s continued willingness and ability to manage the fund. The proposed evidence was a valuation of capitalised earnings. In the Court of Appeal it was held that some assets cannot realistically be ascribed a capital value. The valuations sought would be theoretical and not a valuation of assets which were actually available for distribution between the husband and the wife.

If an independent valuation of the company is ordered by the court, the single joint expert accountant will be sent a letter of instruction by the solicitors acting for the parties setting out the background and listing various questions that the solicitors wish the accountant to address in his / her report.

The court has an overriding duty to consider whether the cost of involving a single joint expert is proportionate in each case.

If you have any queries about this article please contact jonesnickolds on 0203 405 2300 or contact@jonesnickolds.co.uk