The importance of a business valuation in a Family Law property division

The importance of a business valuation in a Family Law property division -

Around 70% of Australia’s 2.1 million businesses are family owned.  This means that family businesses are commonly involved in a property division dispute when a couple separates.  Very often, both parties have worked hard and endured sacrifice to help the family business along.  When a marriage or de facto relationship breaks down, the family business becomes a central issue in the resolution of the property division between the parties.  While one party may hold the ownership and control of the business, the other party has also, invested in the business by virtue of the relationship even if they have never actually worked in or for the business.

Where either party has an interest in a business (whether it is held by both parties jointly, individually or with any other people), the interest in the business must be included in the pool of assets available for division between the parties and, for this purpose, the value of the business must be determined.  Unless the business is a very small and simple operation, a business valuation will be necessary in order to determine the value of the business.

The benefits of a business valuation

A business valuation will ensure fair and reliable value is allocated to the business at a particular time so that the parties and provide necessary information to achieve a pragmatic and reasonable property division.

If your former partner wants to keep the business, it may be in their interests to claim the business is not performing as well as it actually is. If you intend to retain the business, it will not be in your favour to have an inflated or unrealistic value attributed to the business.

How to obtain a business valuation

A business valuation should be performed by an Accountant who is impartial (ie. not the Company Accountant) and who has specialised business valuation knowledge based on their training, study or experience.  The valuer should be carefully instructed in relation to the factors they are to take into consideration when valuing the business and how the report must be prepared in case it needs to be used in Court.  The valuer will provide a report and attribute an actual figure (even if within a range) of the actual worth of the business

Choosing the valuer

Each party can choose their own valuer however it can save time and money for both parties to jointly appoint an agreed valuer.  Otherwise, each party can end up with a number of valuation reports which provide differing values for the business, which creates a further dispute between the parties as to which valuation report should be used.  However, separate valuations can be obtained if the parties do not initially agree on a joint valuer, or if the proceedings are before the Court and the Court allows separate valuation reports to be used.

The court will usually only allow separate valuers if there is a good reason. For example, if the jointly engaged valuer didn’t have all the information about the business or if the valuation was done in a way that is different to standard practice, the court will consider separate valuers.

The likely cost of a business valuation report

Business valuation reports are generally quite costly.  A formal report (to be used in Court) will generally cost around $10,000 to $15,000 for a relatively small business (less than 15 employees).  However, a preliminary report can usually be obtained for approximately $5,000 which, although it will not be able to be used in Court, will be invaluable in assisting the parties with negotiations. 

Dealing with the costs of the business valuation report

Generally speaking, if the parties agree to appoint a joint valuer, then the parties share the cost of the preparation of the valuation report equally.  If a party chooses to instruct their own valuer, they will bear the costs of the preparation of that valuation report. 

What is included in the valuation report?

A business valuation report will include:

  • The information on which the valuer has based their valuation,
  • The methodology used to reach the value, and
  • The value attributed to the business as at a certain date.

Parties to a Family Law property division may be content to exclude a business interest from the property available for division due to a perception that the business does not have any value because “it doesn’t own any assets” or “we don’t make much money from it.”.  Such perceptions can often be quite inaccurate. A business valuation report can be prepared relatively quickly and easily and, although appearing costly, can be an invaluable tool in assisting parties to achieve a fair outcome in their property division.

How Can We Help?

If you need assistance during a separation or want to know more about the impact a family business can have in Family Law proceedings, please contact us today on 02 4952 3901 or email hello@delaneyroberts.com.au for a 15 minute free consultation with one of our estate planning solicitors.

By Anna Roberts

Director, Senior Solicitor & Family Dispute Resolution Practitioner