How Is a Business Valued in Divorce? A Guide for Business Owners

When a marriage breaks down, a business can be one of the most valuable and complex assets to consider in a divorce financial settlement.

Whether you own a limited company, partnership, professional practice or shares in a family business, understanding how a business is valued in divorce is essential to achieving a fair financial outcome.

For business owners, there may also be concerns about protecting the company, maintaining control and ensuring that the business can continue operating after the divorce.

At Maguire Family Law, we regularly advise business owners, entrepreneurs and professionals on complex financial settlements involving business interests. Here, we explain how business valuations work in divorce proceedings in England and Wales, what happens when spouses disagree about a company's value and whether a business may need to be sold.

Why is a business valuation important in divorce?

When divorcing couples negotiate a financial settlement, one of the first steps is establishing the nature and value of their assets.

These may include the family home, savings, investments, pensions and business interests.

Where either spouse owns a business, an independent valuation may be necessary to establish its value and understand how it should be considered within the overall financial settlement.

A business can represent a significant proportion of a family's wealth. It may also provide the income that supports the family and, potentially, other employees.

However, the value of a business on paper is not necessarily the amount of money available to the business owner. This distinction can be particularly important during divorce negotiations.

How is a business valued in divorce?

There is no single method for valuing a business during divorce. The appropriate approach will depend on the nature of the company, its financial performance, assets and ownership structure.

An independent forensic accountant may consider several factors, including:

• Profitability: Historic profits, current trading performance and future earning potential.
• Business assets: Property, equipment, investments and other assets owned by the company.
• Liabilities: Outstanding loans, debts and other financial obligations.
• Cash reserves: The amount of cash held by the business and how much is required for ongoing operations.
• Goodwill: The value associated with the company's reputation, client relationships and established trading position.
• Ownership structure: Shareholdings, shareholder agreements and any restrictions on selling or transferring shares.
• Tax implications: Potential tax liabilities arising from a sale, transfer or extraction of funds.

Different valuation methods may produce significantly different results.

For example, a profitable trading company may be valued primarily by reference to its maintainable earnings, commonly known as an earnings-based valuation.

By contrast, a property investment company may be valued principally by reference to its underlying assets and liabilities, known as a net asset valuation.

In some cases, more than one valuation method may be considered before an appropriate conclusion is reached.

Who carries out a business valuation during divorce?

Where spouses cannot agree on the value of a business, it is common for an independent forensic accountant to be instructed.

In divorce financial proceedings, this may involve appointing a single joint expert (SJE), who is instructed on behalf of both parties, subject to the court's permission where required.

The expert's responsibility is to provide an independent professional opinion rather than advocate for either spouse.

The accountant will typically examine financial information such as company accounts, tax returns, management accounts and other relevant business records.

The resulting report may address:

• The estimated value of the business and the relevant shareholding.
• The business's financial performance and future prospects.
• Whether the company has surplus cash or other assets.
• The potential tax implications of extracting capital or selling shares.
• The liquidity of the business and its ability to raise funds.

Importantly, the expert may also consider whether the business owner could realistically access the value attributed to their shares. This can make a significant difference when negotiating a financial settlement.

Is my spouse entitled to half of my business in a divorce?

One of the most common concerns for business owners is whether their husband or wife will automatically receive half of the business.

There is no automatic rule that a spouse is entitled to 50% of a business.

In England and Wales, the court considers the couple's overall financial circumstances and the statutory factors relevant to achieving a fair outcome.

These include the parties' financial needs, resources, earning capacities, ages, the duration of the marriage and contributions to the family.

A business may form part of the assets considered in a financial settlement, even where only one spouse has been involved in running it.

However, this does not necessarily mean that ownership of the company must be divided equally or that shares must be transferred to the other spouse.

The appropriate outcome will depend on the circumstances of the individual case.

What happens if I owned my business before marriage?

If a business was established before the marriage, its treatment may be different from a business built up during the marriage.

The court may consider whether some or all of its value represents non-matrimonial property, particularly where the business was established and developed independently before the relationship.

However, owning a business before marriage does not automatically exclude it from a divorce financial settlement.

Factors such as the length of the marriage, the growth in the business's value during the marriage and the financial needs of both parties may all be relevant.

This is an area where specialist family law advice can be particularly important.

Will I have to sell my business if I get divorced?

Not necessarily. In many cases, it is possible to reach a financial settlement without selling the business.

The family courts recognise that a company may provide an ongoing income for its owner and employment for other people.

As a result, preserving the business as a viable trading entity can be an important consideration.

One possible solution is for the business-owning spouse to retain their shares while the other spouse receives a greater proportion of other assets, such as:

• The family home or other property.
• Savings and investments.
• Pension assets.
• A lump sum payment, potentially structured over time.

This approach is sometimes described as offsetting, where one asset is retained in exchange for a different allocation of other matrimonial assets.

However, offsetting is not always straightforward. A business interest, property and pension can have very different characteristics in terms of liquidity, risk and taxation.

The aim is to achieve a fair settlement while protecting the long-term viability of the business wherever possible.

What happens if we disagree about the business valuation?

Even where an independent expert has prepared a valuation report, the parties may disagree with its findings.

For example, there may be disputes about projected profits, the value of goodwill or the assumptions used to calculate the company's worth.

An expert report can often help narrow these disagreements and provide a clearer basis for negotiations.

Where questions remain, the parties may be able to seek clarification from the expert through written questions.

In court proceedings, further expert evidence is subject to the relevant procedural requirements and the court's permission.

If the matter proceeds to a final hearing, the expert may be required to give evidence and be cross-examined about their conclusions.

Ultimately, it is the court that determines what weight should be given to the valuation evidence when deciding the financial settlement.

How can I protect my business during divorce?

If you are a business owner considering divorce, obtaining specialist advice at an early stage can help you understand your position and plan appropriately.

This may include reviewing the ownership structure, identifying relevant financial documentation and understanding the potential impact of a settlement on the company's cash flow.

It is also important to distinguish between the value of the business and the income it generates, particularly where the business owner relies on that income to meet their future financial needs.

Taking professional advice early can help avoid unnecessary disputes and reduce the risk of a settlement that places undue pressure on the business.

Specialist divorce advice for business owners

Business valuations can be one of the most complicated aspects of a divorce financial settlement, particularly where substantial assets, complex ownership structures or family companies are involved.

At Maguire Family Law, our specialist family law solicitors advise business owners, entrepreneurs and high-net-worth individuals on divorce and financial settlements involving business interests.

We work alongside forensic accountants and other financial experts where appropriate to help clients understand the value of their business interests and negotiate practical, commercially informed settlements.

With offices in Manchester and Cheshire, we advise clients across England and Wales on complex financial matters arising from divorce.

If you are concerned about how your business may be treated in a divorce, contact Maguire Family Law for confidential, specialist advice.

Article by Henry Venables, director, Maguire Family Law.