1. Introduction: Why Business Valuation Matters in Divorce

Business assets often represent a significant portion of family wealth, making their valuation a central issue in divorce proceedings. The process can be disruptive, affecting not only the divorcing couple but also other shareholders, employees, and the business’s future. Courts in England and Wales aim for fairness, but the challenge lies in accurately valuing a business that may be complex, illiquid, or dependent on the owner’s personal involvement. Recent cases, such as Versteegh v Versteegh [2018] EWCA Civ 1050, highlight how business valuation is more “art than science,” with outcomes that can vary widely depending on the chosen method and available evidence.

2. How do you value a business for divorce?

Valuing a business for divorce typically involves appointing an independent expert, often a forensic accountant, to assess its worth. Common methods include:

• Net asset value: Based on the company’s balance sheet, suitable for asset-heavy businesses.
  Example: A property company with assets of £800,000 and liabilities of £100,000 may be valued at £700,000.
  
  

• Maintainable earnings: Focuses on the business’s ability to generate profit, often using a multiplier.
  Example: A consultancy with annual profits of £200,000 might be valued at £1.2 million using a 6x multiplier.
  
  

• Market value: Compares the business to similar companies sold recently, though this can be hard for unique or niche businesses.
  
  

• Discounted cash flow: Projects future cash flows and discounts them to present value, used for larger or more stable businesses.

The court may appoint a Single Joint Expert (SJE) whose report carries significant weight, but both parties can challenge the findings if they believe the valuation is inaccurate or unfair.

3. Is a business considered an asset in a divorce?

Yes, any business interest owned by either spouse is usually included in the asset schedule for divorce. The court will consider whether the business is “matrimonial property” (acquired or grown during the marriage) or “non-matrimonial property” (pre-existing or inherited). For example, if a husband started a dental practice before marriage but its value increased significantly during the marriage, the court may share the increase in value rather than the whole business. In Standish v Standish [2024] UKSC 0089, the Supreme Court clarified that only the growth attributable to marital effort is subject to division, not the original value if it was pre-marital.

4. Is my wife entitled to half my business in a divorce?

The court’s aim is fairness, not automatic equality. Your spouse is not entitled to half the business itself, but may be awarded a share of its value. This is usually achieved through a lump sum payment or, in rare cases, a transfer of shares. For example, if your business is valued at £500,000 and you own it outright, the court may order you to pay your spouse £250,000, reflecting half the value, but allow you to retain control. In some cases, the court may consider liquidity and the impact on the business, opting for staged payments or a Wells order, where the spouse receives a share of future sale proceeds.

5. Valuation of law practice in divorce

Law practices present unique challenges in divorce valuation. Goodwill, client base, and partnership structure all affect the final figure. A sole practitioner might be valued at one year’s net profit, while a partner in a larger firm may only have their capital account valued. For example, a sole solicitor earning £120,000 net profit could see their practice valued at £120,000, while a partner in a national firm may have a capital account worth £40,000. In Cranstoun v Notta [2020] EWHC 3488 (Ch), the court considered both profits and the value of ongoing client relationships when valuing a dental practice, a principle that applies to law firms as well.

6. Independent valuation divorce

Courts often appoint a Single Joint Expert (SJE) to value the business, aiming for impartiality. Both parties can submit their own figures, but the SJE’s report is usually preferred unless there’s a clear error. For example, if the SJE values a business at £2 million, but the husband’s expert says £2.5 million and the wife’s says £1.5 million, the court will scrutinise the assumptions and evidence behind each figure. Parties can challenge the SJE’s report, but must provide strong evidence to persuade the court to depart from it.

7. Valuation strategies in divorce

Valuation is rarely straightforward, and both parties may adopt strategies to influence the outcome. Common tactics include:

• Minority discount: If a spouse owns less than 50% of a business, a discount (often 20–33%) may be applied to reflect reduced control and marketability.
  Example: A 30% share in a business valued at £1 million might be discounted by 25%, reducing its value from £300,000 to £225,000.

• Goodwill arguments: One party may argue that personal goodwill (reputation tied to the individual) should not be included, reducing the overall value.

• Market conditions: Parties may present evidence of declining profits or industry downturns to argue for a lower valuation.

• Wells order: If the business cannot be sold or divided immediately, the court may order that a spouse receives a share of future sale proceeds rather than a lump sum now.

In Martin v Martin [2018] EWCA Civ 2866, the court warned against over-reliance on speculative or optimistic valuations, favouring a cautious and evidence-based approach.

8. Common pitfalls and top tips

Pitfalls:

• Failing to provide full and honest financial disclosure, risking court sanctions.

• Relying on outdated or incomplete accounts, leading to inaccurate valuations.

• Ignoring tax implications of selling or transferring business assets.

• Overlooking the impact of a forced sale on business continuity.

Top tips:

• Obtain an independent valuation early, even before proceedings start.

• Keep business and personal finances strictly separate.

• Consider liquidity and tax when negotiating settlements—sometimes a staged payment is more practical than a lump sum.

• Use recent case law and expert evidence to support your position in negotiations or court.
  
  

9. Conclusion: Navigating Business Valuation in Divorce

Business valuation in divorce is complex, often contentious, and can have lasting effects on both the business and the individuals involved. Preparation, transparency, and expert advice are essential. By understanding the methods, pitfalls, and strategies, you can approach negotiations or court proceedings with realistic expectations and a stronger position. Early action and professional support can help protect your business interests and achieve a fair outcome.

Disclaimer:
This article is for general information only and does not constitute financial, legal, or tax advice. For advice specific to your circumstances, consult a qualified professional.