How does the court value a business?

It is obviously common that one party to financial remedy proceedings owns, or has an interest in, a business.

Clearly, the court will want to know the value of that party’s business interest, but how does it go about valuing it?

A recent, and instructive, High Court case provides the answer.

The case concerned a couple who married in 1990 and separated in October 2020. The wife did not work outside the home during the marriage, and the husband had a long and largely successful career in financial services.

Divorce proceedings were issued, followed by a financial remedies application.

One of the issues to be determined in the application was the value of the husband’s interest in a business.

The court directed that a single joint expert be instructed to provide a valuation of the business.

But neither party was happy with this joint valuation. The court therefore allowed each party to instruct their own expert valuer.

Accordingly, by the time the case reached a final hearing there were no fewer than three valuations of the husband’s business interest, and the figures arrived at by the experts differed remarkably.

The joint expert valued the husband’s interest at nearly £9 million, the wife’s expert valued it at nearly £19 million, and the husband’s expert valued it at just £133,000.

So why did two experts value the business in the millions and one at just £133,000?

This was explained by the husband’s expert.

Essentially, it was because the husband was the business. He brought in 90% of the fees earned by the business. Without him, the business had no significant market value to a third-party investor.

And the judge agreed. He therefore include the sum of £133,000 as the value of the husband’s business interest in the schedule of matrimonial assets to be divided between the parties.

Including that figure, the total value of the matrimonial assets came to some £33 million.

The judge considered that a fair outcome would be to divide that sum as to 51% to the wife and 49% to the husband.

Obviously, the valuation of the husband’s business interest was critical to the outcome of this case. Had the wife’s valuation or the joint valuation been accepted by the court then the outcome would have been quite different, with the wife likely receiving considerably more than she did.

You can read the whole judgment in the case here.

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Image:  Oleksandr Rybitskiy  /