Written by: Farzana Naz, Director / Head of Family
Reviewed by: Saracens Solicitors Family Law Team
Business valuation divorce work is the process of establishing what a company, or a spouse’s shareholding in it, is genuinely worth for the purposes of a financial settlement, usually carried out by an independent forensic accountant appointed jointly by both parties during a high net worth divorce. It is rarely as simple as taking the figure from a recent funding round or an accountant’s balance sheet, because a court needs a value that reflects what could realistically be extracted from the business without destroying it. Getting this valuation right, or successfully challenging one that looks wrong, is often the single biggest factor in a business owner’s settlement.
Because so much can turn on this single figure, both spouses benefit from understanding, in outline, how the process works and where disagreements are most likely to arise before the expert is even instructed.
Key Takeaways
- Business valuations are often central to high net worth divorce settlements, with independent forensic accountants assessing what a company or shareholding is realistically worth using recognised valuation methods tailored to the business.
- Valuation disputes frequently arise over profits, goodwill, growth projections and minority shareholdings, making it essential to use experienced experts and carefully scrutinise how the final figure has been calculated.
- Courts generally seek to preserve viable businesses rather than force a sale, often structuring settlements through asset offsets, property transfers or staged lump sum payments that allow the business owner to retain and continue operating the company.
How Private Companies Are Valued
Private companies are usually valued using one or more recognised methods, including a multiple of earnings, which applies an industry appropriate multiplier to profit, a discounted cash flow approach, which projects future income and discounts it to a present value, or a net asset valuation, which is more relevant for asset heavy businesses such as property or investment companies. The right method depends heavily on the nature of the business, and a valuer will often use more than one approach and cross check the results.
Minority shareholdings, meaning a stake of less than fifty per cent, are usually valued at a discount to reflect the fact that a minority owner cannot control the company’s decisions or force a sale, while shares that are subject to restrictions on transfer may also be discounted for lack of marketability.
Role of Forensic Accountants
In most cases, the court will direct that a single joint expert, typically a forensic accountant, is instructed to value the business, so that both spouses rely on the same independent report rather than commissioning competing valuations. The expert will review company accounts, tax returns, management information, contracts and, where relevant, comparable transactions in the same sector, before producing a report that both sides can question through written queries.
Choosing the right expert matters. Someone experienced in valuing businesses of a similar size and sector, ideally with direct experience of matrimonial work, is far more likely to produce a robust valuation that withstands scrutiny than a generalist accountant unfamiliar with the specific standards courts expect in family proceedings.
Common Valuation Disputes
Disputes typically arise over the multiple applied to profit, particularly in fast growing or unusual businesses where there is no obvious comparable, over how much of a company’s success is down to personal goodwill built around one individual rather than the business itself, and over how future risks, such as the loss of a key client or a founder’s departure, should be reflected in the figure. Disagreements about the timing of the valuation, since business value can change significantly between separation and settlement, are also common.
Where one spouse believes a valuation understates the true position, for example by suspecting undisclosed income, unusual expense claims or assets moved outside the company shortly before proceedings began, further investigation and expert questioning can be requested, though this adds time and cost and should be pursued only where there is a genuine basis for concern.
Family Businesses and Growth Companies
Family businesses often require the valuer to separate the divorcing spouse’s interest from a wider shareholding held by parents, siblings or other relatives, and to consider whether other family shareholders have rights that limit what can be done with the shares in question, such as pre emption rights that require shares to be offered to existing family shareholders first. Growth companies, particularly those that have raised venture capital, present a different challenge, since headline valuations from funding rounds often reflect investor expectations of future growth rather than a value that could be realised today, and a matrimonial valuation will usually look considerably more conservative.
In both cases, the reasoning behind the valuation matters as much as the final figure, since a well reasoned but lower valuation is often more defensible than an aggressive one that cannot be justified under challenge.
Impact of Valuations On Settlements
Once a valuation is agreed or determined by the court, it feeds directly into the wider financial settlement, usually alongside the couple’s other assets such as property, pensions and savings. Because businesses are illiquid, meaning their value cannot easily be turned into cash without disrupting operations, settlements are frequently structured so that the business owning spouse retains the company while the other receives a larger share of liquid assets, or a lump sum paid over time, an approach discussed further in divorce for business owners and entrepreneurs.
Understanding how a valuation is likely to be treated, and what a business can realistically afford to pay without threatening its future, is central to the wider financial remedies process, which we explain in Financial Remedies in High Net Worth Divorce.
Instructing the Right Expert
Not every accountant is experienced in matrimonial valuation work, which follows specific standards and expectations that differ from a valuation prepared for a sale, a funding round or a tax purpose. Choosing an expert with a strong track record in family cases, and ideally in your specific industry, reduces the risk of a valuation that attracts unnecessary challenge.
Both spouses are usually able to raise written questions once a draft report is produced, and using this process constructively, focusing on genuine areas of uncertainty rather than simply disputing an unwelcome figure, tends to produce a more robust and ultimately faster outcome.
It is also worth remembering that valuation is not a one off exercise frozen in time. Where a case takes many months or even years to resolve, values can shift meaningfully, particularly in fast moving sectors, and revisiting a valuation close to the point of settlement, rather than relying solely on an early figure, helps ensure the final agreement reflects the business as it actually stands rather than as it once was.
Frequently Asked Questions / Questions & Answers
Who pays for the business valuation in a divorce?
The cost is usually shared equally between both spouses, since the valuation is intended to be independent and used by both sides, though the court has discretion to order a different split in certain circumstances. A well reasoned valuation, even if lower than expected, is usually more defensible than an aggressive one.
Is the valuation used for divorce the same as a market valuation?
Not necessarily. A matrimonial valuation reflects what could realistically be extracted from the business for settlement purposes, and often differs from a sale price, funding round valuation, or accounting book value. This is one reason parties are encouraged to agree a single joint expert rather than commission separate, competing reports.
What happens if we disagree with the expert’s valuation?
Either party can raise written questions with the expert, and in some cases apply to challenge the report or seek clarification from the court. Persuasive challenges usually rely on clear evidence rather than a simple disagreement with the outcome. Persuasive challenges are usually based on clear evidence rather than simple disagreement with the outcome.
Does a business have to be sold to pay a settlement?
Rarely. Courts generally prefer settlements that keep a trading business intact, using other assets, refinancing, or payments spread over time to fund the non owning spouse’s share instead. This is particularly relevant for technology and other high growth sectors where public funding announcements can create unrealistic expectations.
How is goodwill treated in a business valuation?
Personal goodwill, tied to one individual’s skills or relationships, is usually treated differently from commercial goodwill that would transfer with a sale of the business, and this distinction can significantly affect the final figure. Getting this distinction right early avoids unnecessary disputes later in the process.
Speak to a Business Valuation Divorce Specialist
If your divorce involves a business that needs to be valued fairly and defended under scrutiny, our family team works closely with leading forensic accountants to protect your position.
Call us on +44 (0)20 3588 3500, or visit our Family Law service page to find out more about how Saracens Solicitors can help.
Saracens Solicitors, Thanet House, 231 and 232 Strand, London, WC2R 1DA
