By Scarlett Southey, Paralegal
When a de facto or married couple separate and begin the process of identifying their assets, if there are any businesses, unless the value is agreed the spouse’s interest in the business is to be valued as part of that process. Under the Family Law Act 1975, a party’s interest in a business, is considered to be property for the purpose of dividing assets between parties to a separation.
There are several factors to be taken into consideration when conducting family court valuations and for this reason methodologies vary depending on the type of business being valued. A business can be valued according to its fair market value or value to owner.
Fair market value
Fair market value is the amount for which an asset should exchange on the date of valuation between a willing buyer and a willing seller. It reflects the value of each asset and liability and the profitability, market position and attractiveness of the business.
Fair market value is the most objective approach. However, issues can arise when completing valuations based on fair market value for family law proceedings, especially in cases where a business asset owned by a party or parties to the dispute delivers value but is not saleable in any marketplace.
Value to owner
The value to owner approach to valuation is intended to capture the reality of the situation by considering any additional economic benefit which is conferred upon the business owner by their control of the shareholding. It includes the value of any commercial, financial, or other advantage which accrues to the owner which might not necessarily be available to any hypothetical third party purchaser.
Conveying value to the owner is a tricky balance, however, is largely focused on assessing the past and (predicted) future income flows generated from an asset.
How can we help if you own a business, and you are going through a divorce?
This is a dilemma and question many of our family law clients face. As experienced family lawyers, the valuation of a sole owner business when separation or divorce occurs is fraught with difficulties and misconceptions. At Mills Oakley, our team of Lawyers understand business valuations and can engage our network of experts to ensure your interests are represented appropriately in the asset pool.