Family businesses are often involved in a property division dispute following the breakdown of a marriage or de facto relationship.

Even where one party has the ownership and control of the business and the other party has never worked in the business, they have nevertheless invested in the business by virtue of the relationship. When a married or de facto couple separate, the family business is often a central issue in negotiating a property division.

Where either party has an interest in a business (whether it is held jointly by both parties, individually or with other people), that interest must be included in the pool of assets available for division between the parties. Unless the business is a very small and simple operation, it’s value must be determined.

The benefits of a valuation

A business valuation ensures that a reliable value is allocated to the business.

How to get a valuation

A business valuation should be performed by an accountant who is impartial (ie. not the business’s accountant) and who has specialised business valuation knowledge based on their training, study or experience. The valuer should be carefully instructed regarding the factors they are to take into account when valuing the business and the preparation of the report in case it has to be used in court. The valuer will provide a report attributing a value (or a range of values) of the worth of the business

Choosing the valuer

Each party can choose their own valuer. 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 the use of separate valuation reports. However, it can save time and money for the parties to jointly appoint an agreed valuer. Otherwise, each party may have a valuation report with differing values for the business, which may give rise to further dispute as to which report should be used.

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

The cost of a report

Business valuation reports are generally quite costly. A formal report (able to be used in court) will generally cost about $10,000 to $15,000 for a relatively small business (less than 15 employees). However, a preliminary report can usually be obtained for about $5,000 – $10,000. Although it cannot be used in court, a preliminary report may greatly assist the parties with negotiations.

Who pays for the report?

If the parties agree to appoint a joint valuer, they usually equally share the cost of the preparation of the report. A party choosing to instruct their own valuer pays for the preparation of the report.

What is included in the report?

A business valuation report will include:

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

Parties negotiating a Family Law property division may perceive that a business has no value and on that basis agree to exclude a business interest from the property available for division. However, such perceptions are often inaccurate. Although appearing costly, a business valuation report can be an invaluable tool in assisting parties to achieve a fair and equitable property division.

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Contact us for free no-obligation initial telephone advice and assistance regarding any aspect of a Family Law property settlement.