Court Adopts Broad Brush Valuation of Business on Divorce
On divorce, the valuation of a family business is often a highly emotional and contentious issue, so it was unsurprising when the divorce of a couple after 15 years of marriage led to an acrimonious dispute over the value of their successful restaurant business.
The ex-husband valued the total assets (including the business, which he had run for 33 years) at £4.2 million. His ex-wife placed a valuation on the assets of £7.6 million, valuing the business at £5.3 million. She sought 50 per cent of the net assets plus school fees for the children. Her ex-husband offered 42 per cent of the net assets (£1.7 million), although this offer was later reduced.
Each produced an expert witness to back up their respective valuation of the business, which was the main point of dissent. The experts differed, but the main point of contention was whether the valuation should be based on a multiple of six times ‘maintainable earnings’ or nine times.
The judge relied on evidence of transactions in similar circumstances and ruled that the multiplier should be 6.5. He commented that the valuations of experts were of ‘doubtful utility’ because they are a matter of opinion and experts’ opinions differ. He therefore adopted a broad brush approach. Since there were insufficient resources for a ‘clean break’ arrangement to be financed, he ordered that the wife should receive £1.45 million plus periodical payments of £60,000 annually, child maintenance of £20,000 per annum and the cost of the school fees.
Says Bruce Waters, “Few aspects of the financial arrangements in a divorce can be as contentious as the value of a family business and it is by no means uncommon for quite unrealistic values to be put forward. In many cases, the best overall result is achieved by the use of a single joint expert and sensible negotiation.”
For more specific advice and guidance please telephone Bruce Waters on 01675 463855.
The information contained in this newsletter was prepared in January 2009 and is intended for general guidance only. It provides information in a concise form and is not a substitute for obtaining legal advice. If you would like advice specific to your circumstances, please arrange for an appointment to discuss.
The ex-husband valued the total assets (including the business, which he had run for 33 years) at £4.2 million. His ex-wife placed a valuation on the assets of £7.6 million, valuing the business at £5.3 million. She sought 50 per cent of the net assets plus school fees for the children. Her ex-husband offered 42 per cent of the net assets (£1.7 million), although this offer was later reduced.
Each produced an expert witness to back up their respective valuation of the business, which was the main point of dissent. The experts differed, but the main point of contention was whether the valuation should be based on a multiple of six times ‘maintainable earnings’ or nine times.
The judge relied on evidence of transactions in similar circumstances and ruled that the multiplier should be 6.5. He commented that the valuations of experts were of ‘doubtful utility’ because they are a matter of opinion and experts’ opinions differ. He therefore adopted a broad brush approach. Since there were insufficient resources for a ‘clean break’ arrangement to be financed, he ordered that the wife should receive £1.45 million plus periodical payments of £60,000 annually, child maintenance of £20,000 per annum and the cost of the school fees.
Says Bruce Waters, “Few aspects of the financial arrangements in a divorce can be as contentious as the value of a family business and it is by no means uncommon for quite unrealistic values to be put forward. In many cases, the best overall result is achieved by the use of a single joint expert and sensible negotiation.”
For more specific advice and guidance please telephone Bruce Waters on 01675 463855.
The information contained in this newsletter was prepared in January 2009 and is intended for general guidance only. It provides information in a concise form and is not a substitute for obtaining legal advice. If you would like advice specific to your circumstances, please arrange for an appointment to discuss.
