Business valuation in Family Law property division

Around 70% of Australia’s 2.1 million businesses are family owned. Consequently, family businesses are often involved in a property division dispute following the breakdown of a marriage or de facto relationship.

Both parties have often worked hard and made sacrifices to help the family business along. Even where one party has the ownership and control of the business and the other party has never worked in or for 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 business valuation

A business valuation ensures that an appropriate and reliable value is allocated to the business at a particular time. The parties provide the information required to negotiate a property settlement and achieve a pragmatic and reasonable property division.

If you intend to retain the business, it will not be in your interests to have an unrealistic or inflated or value attributed to the business. 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.

How to obtain a business valuation

A business valuation should be performed by an Accountant who is impartial (ie. not the Accountant for the business) 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 separate valuation reports to be used. 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 likely cost of a business valuation 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. Although it cannot be used in Court, a preliminary report may greatly assist the parties with negotiations.

Dealing with the costs of the business valuation report

If the parties agree to appoint a joint valuer, the parties 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 valuation 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 because “it doesn’t own any assets” or “we don’t make much money from it.” and on that basis agree to exclude a business interest from the property available for division. However, such perceptions are often 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 and equitable property division.

How Can We Help?

If you need assistance during a separation or want to know more about the potential impact of a family business in Family Law property division negotiations, contact us now for a free consultation.

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