Business Valuations in Family Law Property Settlements
Business interests often form part of the asset pool available for division in a family law property settlement. It may be a business that has been built by one or both of the parties to the family law matter, such as a family business, or a business owned by way of a partnership or a company with third parties.
Parties to family law matters are required to make full and frank disclosure of their financial circumstances when seeking a property settlement. This is to ensure that the asset pool held by the parties can be accurately determined and valued if required. Financial disclosure usually occurs prior to any discussion or decisions concerning the division of assets and liabilities between the parties. Therefore, where a party or parties hold a business interest, no matter how that interest is held, including as a sole trader, or through a partnership, company or trust, that interest must be disclosed.
It can be difficult for people to determine and agree on the value of a business interest at any given time, let alone when they are facing the often stressful nature of a family law property settlement.
Similarly, the family or business accountant cannot always be relied upon to provide a correct and impartial value of a business interest. To seek to ensure accuracy, independence and fairness when obtaining a value of a business interest that forms part of the family law property pool, it is quite common for the parties to jointly engage a qualified valuer to prepare a business valuation report.
Business interests can be valued using a range of different methodologies, each of which will apply criteria to examine the business in a way which is most appropriate to its structure, operations and industry. A qualified business valuer will make the determination of the appropriate method to be utilised, and will calculate the value of the business interest.
A key issue which often arises in family law matters, is where one party has had greater or sole involvement in operating the business, they also may intend to retain the business in the family law property settlement, and therefore they may attempt to take actions post-separation to run down the value of the business interest, prior to its valuation and a family law property settlement occurring.
Fortunately, an advantage of engaging a qualified valuer is that the expert will consider the financial information and performance of the business for the previous three to five financial years when preparing their report and determining a value. The valuation report will usually be prepared using both historical and current information and therefore is a more accurate reflection of the business’ performance – even if a party is deliberately trying to decrease the value.
Appointing a qualified valuer to undertake a formal business valuation in a family law property settlement can allow for smoother negotiations if the parties accept that the independent, jointly engaged expert has thoroughly analysed the relevant information and produced a valuation report based on the past and current performance of the business. Business valuations can therefore help to protect a party’s interests, particularly in circumstances where their former partner or spouse has taken steps to try and devalue the business interest.
Our family law team can assist with the engagement of qualified valuers for clients who have business interests as part of their family law property settlement pool. To discuss a business valuation or any other family law related issue, please contact our family law team.
Natasha Vassallo
Lawyer
T 03 5225 5237
E nvassallo@ha.legal
Tara Paatsch
Special Counsel
M 0412 660 842 | T 03 5225 5254
E tpaatsch@ha.legal
