Businesses And Matrimonial Matters
Unfortunately being involved with a business and divorce go together and widely diverging views between the divorcing parties on the value of businesses can make the process more difficult. VC is experienced in valuing businesses and Intellectual Property (IP) as Expert Witness in these situations and this can greatly reduce uncertainty, assist negotiation and alleviate what can be a painful process
If you own a controlling share in a business or are a partner in one they can be all consuming leaving little time for family life. The related stresses and strains can lead to relationship problems and in the worst cases divorce. Often one of the divorcing parties is more closely involved with the business and has a view on how much it is worth and also how much they personally are worth to it. This view could be right or wrong and can change dramatically in a divorce context. Businesses which were doing great can suddenly be presented as doing badly and worth much less. Key person points and ‘cash’ extraction issues may be forcibly argued. In this context a fair independent valuation is essential. This is especially important given the obligation on all parties for full and frank disclosure regarding income and assets.
Recent UK Court judgements in Sharland v Sharland and Gohil v Gohil involving non-disclosure of relevant facts after the proceedings where non-disclosure was deemed to be fraudulent can result in divorce settlements being revisited and amended.
In order for there to be a fair and lasting settlement the Family Court needs to be in full possession of the relevant facts about assets and income in order to make an appropriate division of the assets between divorcing parties, and to make provision for the future maintenance of the former spouse and children. As far as business assets are concerned this usually entails a market valuation which is fair. Where private companies and businesses are involved there is no quoted market price and typically financial statements represent no valuation of intangible assets and IP such as brands, copyright and patents. These businesses are hard to value.
Ideally, where divorcing spouses are well advised and there is full and frank disclosure and a degree of trust, a fair valuation outcome is best achieved by appointing a single joint expert (SJE) to value the business assets for the Court. Such a valuation is in theory binding on both parties but in practice does not prevent either party from querying the valuation either in correspondence or by cross examination at trial. This SJE approach is encouraged by the Family Court.
Where there is a lower level of trust, it is open to either party to appoint their expert to value the business assets based on full and frank disclosure of the relevant facts about the business. Usually one party with the greater involvement in the business will control the information flow and will have greater knowledge about the business. Well advised disclosure requirements should mean that the other party can obtain access to the necessary financial and related information required to facilitate an expert to form a rigorous independent view on value. Experts' values can differ considerably as valuation is not an exact science. Experts meet to resolve their differences and either agree between them an appropriate fair value or, more likely quantify where they agree and where they differ. These views are taken into account in further negotiations, mediation or trial. This process is usually more expensive and takes longer than the SJE approach.
There are sometimes objections that business valuation is expensive but this need not be the case where experienced business valuers are involved. Usually a fixed price for their valuation report will be agreed and their independence and experience can provide confidence as to a fair value at an early stage in the proceedings, particularly where acting as SJE. Businesses are often, along with real estate, the most valuable asset in the marriage but with much greater scope for dispute because of their illiquidity.
Our View – the sooner these disputes can be resolved with reduced scope for opening the matter to lengthy negotiation the better; SJE provides a good template.