Jane Tenquist

How are businesses dealt with during divorce.
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How are Businesses Dealt with During Divorce?

Published on
Jane Tenquist
Jane Tenquist
Partner and Head of the Family Law Team
Myerson Solicitors

In the context of marriage, a business’s worth and its revenue are regarded as a potential asset.

However, this does not imply that the court will mandate the sale of the business. The court acknowledges that the business generates income and losing it could have disastrous consequences.

During family court proceedings, a forensic accountant, appointed jointly by the solicitors representing each spouse, usually assesses the business’s value.

The accountant provides guidance on various matters, including the business’s after-tax value, whether there is any cash available that can be extracted, and the associated tax implications.

Additionally, the accountant determines what the business earner can reasonably earn from the business now and in the future.

Typically, the court evaluates the value of a shareholding in the business based on its actual market value. It seeks a valuation that a willing buyer would pay to a willing seller for that particular shareholding.

When to value a business?

The valuation of businesses arises when either or both spouses hold an interest in the business.

Such businesses can be valuable as a source of income, but they may also be valuable capital assets in their own regard.

How to value a business on Divorce? 

Forensic accountants use many methods:

The Capitalised Future Maintainable Earnings Method 

The capitalised future maintainable earnings approach is employed when assessing majority shareholdings.

The approach aims to determine the amount of earnings, in the form of turnover and EBITDA (earnings before interest, tax, depreciation, and amortisation), that a company can sustain over the foreseeable future.

The resulting figure is then multiplied by a factor, known as the price/earnings ratio, which represents the number of future years’ earnings a potential purchaser might consider acquiring.

To establish the price/earnings ratio, earnings from similar businesses with a known market value are compared with an investor’s required return, and a multiple of the representative earnings is applied.

Adjustments are made afterward to account for any unusual transactions in a fluctuating market.

Net Assets Method 

Net assets approach determines a company’s worth by considering the realisable values of its net assets minus its liabilities.

Modifications are made to account for goodwill and potential unrecorded liabilities, such as deferred tax on property sales or break fees on loan facilities.

This technique is typically utilised when evaluating firms that possess property portfolios.

Dividend Yield Method

Valuation of minority shareholdings commonly involves the dividend yield method, but it is seldom used for private companies.

The approach is founded on the amount of profit the company generates for its proprietors.

How is a business split in a divorce?

The court has considerable flexibility in handling a business during a divorce and can issue any of the following directives:

  • Transfer of shares
  • Repurchase of shares by the company
  • Payment of a lump sum to the non-business-owning spouse from the business’s available funds
  • Allocation of other liquid funds from the marriage to the non-business-owning spouse
  • Sale of the business
  • A decree for spousal periodic payments

Is any discount to the value of a business made on Divorce?

The worth of a business can fluctuate significantly, depending on market fluctuations and economic conditions.

The family court acknowledges that the value of a business cannot be easily quantified like more secure assets, such as the net proceeds from the sale of a house.

However, the court may not necessarily apply a discount as the risk factor of the business would have already been factored in during the valuation conducted by the single joint expert forensic accountant.

In some cases, a discount may be applied to the businesses valuation if one spouse receives a greater cash share. Generally, the court strives to balance the riskier assets against the more secure assets to ensure that each spouse bears a proportionate risk.

About Jane Tenquist

Jane Tenquist is a Partner and Head of the Family Law Team at Myerson Solicitors.  She set up the Family department at Myerson in September 2012.

Jane’s work focus is in matrimonial finance, particularly involving complex issues relating to trusts and offshore assets.  Jane has enjoyed success in tracing hidden assets and obtaining freezing orders to prevent assets being diverted during matrimonial proceedings.

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missed financial settlement on divorce
Image by alex_barnes04 from Pixabay

Have you missed out on a financial settlement on divorce?

Published on
Jane Tenquist
Partner and Head of the Family Law Team
Myerson Solicitors

Many people do not pursue their financial claims following a marriage breakdown because they feel ashamed or guilty about their behaviour.

Others do not resolve financial matters due to the volatility in temper of the party who has been left behind. They believe that, in time, the spouse who they have left behind will “forgive” them and that it may be easier to resolve matters financially further down the line.

Unfortunately, this can often turn out to be a false assumption. Continuing to pay household bills and maintenance can lead to a precedent being fixed that this level of financial support will continue into the long term.

It can be quite common that one party may feel a huge sense of guilt if they have left their spouse or civil partner.

The marriage may have broken down due to:

  • One party announcing they are homosexual.
  • One party wishing to undergo gender reassignment surgery.
  • One party committing adultery.
  • One party having relationships with prostitutes and watching pornographic material.
  • One party leaving the other due to the other party’s inability to have children.
  • One party leaving the other due to the other party’s sickness.
  • Addiction issues.

People often assume that there will be a financial impact if one party has had an affair or left the marriage but, this will rarely make any difference to the overall division of assets.

The family court is not concerned about why the marriage ended. The court’s aim is to distribute the available assets fairly between the parties.

The starting point for the court is the checklist set out in Section 25 of the Matrimonial Causes Act 1975, otherwise known as the section 25 factors which are:

  • The income, earning capacity, property, and other financial resources which each party has or is likely to have in the future.
  • The financial needs and responsibilities that each of the parties to the marriage has or is likely to have in the future.
  • The standard of living enjoyed by the family before separation
  • Any physical or mental disability of the parties.
  • The age of the parties and the length of the marriage.
  • The contributions made by each party to the welfare of the family (which means the contributions made towards looking after the home and the children are regarded as equal to the contributions made by the “breadwinner” of the family).
  • The conduct of each of the parties, if inequitable to disregard.
  • The value to each party to the marriage of any benefit which by reason of the divorce a party will lose the chance of acquiring.

It can be tempting for parties to want to list the details of each other’s bad behaviour, but it is rarely the case that conduct will be relevant in financial order proceedings. Although conduct is one of the section 25 factors, it will only be considered in very exceptional circumstances.

In the case of OG v AG, Mr Justice Mostyn said ‘times have changed, the financial remedy court is no longer a court of morals. Conduct should be taken into account not only where it is inequitable to disregard but only where its impact is financially measurable. It is unprincipled for the court to stick a finger in the air and arbitrarily to fine a party for what it regards as immoral conduct.’

If you have divorced but not sorted out the financial arrangements, then it is still possible to make a claim, provided that you have not remarried. Remarriage prevents a party from making a claim for spousal maintenance, a lump sum or property adjustment order.

There is no time limit for making a claim. If you are concerned that you have walked away from your marriage or civil partnership without a fair financial settlement, then please get in touch with a member of the family team.

About Jane Tenquist

Jane Tenquist is a Partner and Head of the Family Law Team at Myerson Solicitors.  She set up the Family department at Myerson in September 2012.

Jane’s work focus is in matrimonial finance, particularly involving complex issues relating to trusts and offshore assets.  Jane has enjoyed success in tracing hidden assets and obtaining freezing orders to prevent assets being diverted during matrimonial proceedings.

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