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Article

How to value a business for divorce purposes

Article

How to value a business for divorce purposes

14 May 2018

2 minute read

It is becoming increasingly likely that a business valuation may form an aspect of divorce. This article sets out the considerations in: estimating the current value of business interests, extracting value from a business and how an accountant can help with a valuation.

How to value a business for divorce purposes - news article image

With recent figures published by the Department for Business, Innovation and Skills showing business ownership to be on the rise. It is becoming increasingly likely that a business valuation may form an aspect of contentious proceedings such as divorce.

When a business forms part of the assets under review in a dispute, the following need to be considered:

  • How to estimate the current value of business interests
  • How to extract value from a business
  • The tax consequences for transferring shares
  • How an accountant can help with a business valuation

How to estimate the current value of business interests

Business value is a subjective matter, and an uninformed value may results in an unfair decision for a client.

In the case of divorce, an estimate of the current value of the business interests is required on the Financial Statement (Form E) or, given to the court should proceedings go that far. An informed value given on Form E can be a practical and efficient way to proceed matters or ascertain quickly whether the other party is being unreasonable in their expectations. Utilising a specialist to value the business at this stage can be a cost effective option for both parties if it prevents the need to progress the matter to court as well as providing faith that a suitable resolution has been reached early in the process.

A good adviser will review the company accounts in detail to ascertain the true underlying profit of the business and the valuation method that should be used. This will also be supplemented with market research and a review of transactions involving similar companies.

How to extract value from a business

An often overlooked element of any dispute that involves company valuation is how any settlement is realised.

Regardless of the eventual valuations, businesses owners and their shareholders may not physically hold the cash that may be required to reach settlement with the other party. This means other methods to ensure a reasonable settlement is reached – such as deferred payments or payment in assets – must be used.

Tax consequences for transferring shares

The transfer of shares from one party to the other will give rise to a number of tax consequences that need to be considered by all parties that may ultimately impact the route taken.

How an accountant can help with a business valuation

Shaw Gibbs can provide independent and detailed business valuations across a range of industries.

We can provide you with an informed value at Form E stage, as well as advice on how to extract value from the business should it be required. Our personal tax team works closely with us to ensure that no unnecessary taxes are incurred as part of this process.

Where valuations are necessary for the purposes of court proceedings or HMRC requirements, we also have a team of specialists with substantial experience in acting as expert witnesses or preparing valuation cases to present to HMRC.


Need expert advice?

Speak to an expert for advice on
+44-1865 292200 or get in touch online to find out how Shaw Gibbs can help you

Email
info@shawgibbs.com

Need expert advice?

Speak to an expert for advice on
+44-1865 292200 or get in touch online to find out how Shaw Gibbs can help you

Email
info@shawgibbs.com

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