Financial Remedies: Company Valuation in Divorce Cases

Yael Selig

Financial Remedies: The Company Valuation Challenge

The tricky matter of business valuations often arises in the course of financial proceedings on divorce. Accurate, expert valuations are vital to enable the parties – and the courts if necessary – to resolve financial disputes; but many other economic factors also come into play.

The specialist divorce and financial remedies team at Osbornes Law represents clients with business interests across London and surrounding regions and the challenges these cases frequently bring.

A recent high value case of WW v XX [2024] EWFC 330 (B), 2 H v H [2008] EWHC 935 (Fam) is a timely reminder that expert professionals are vital to the task of arriving at a reasonable valuation of a private company.

What happened in this case?

The parties had cohabited since 2010, were married in 2017 and separated in 2022. They had always lived in London and had no children together.

H had dual citizenship in the UK and in another country (which the court identified as ‘country A’) where he was running his own successful company. The company also has a UK subsidiary which H purchased in 2010, just before he and W started cohabiting.

The parties were cooperative and friendly towards each other but had been unable to resolve matters outside of the courtroom because of a dispute concerning the company. The key issue was the valuation of the company; and to what extent it amounted to a matrimonial asset (and subject to the sharing principle).

Valuation

The task of valuing private companies presents judges with a constant challenge for several reasons, including:

• There may be no obvious market for a private company
• Valuers using the same valuation method can produce widely differing results
• A private company’s profitability may be volatile, therefore a ‘snapshot’ valuation at a particular date can give an unfair picture
• The acid test of a company valuation is exposure to the real market (which is not possible for a private company where no one suggests that it should be sold)2

Complicating matters yet further, in this case, was the fact that the company was in another country.

Two very experienced professional experts had given differing conclusions: whilst they agreed a £2,403,571 valuation of H’s shareholding, they differed over the multiplier to be applied to that valuation to calculate an earnings basis valuation figure. They arrived at differing figures of approximately £15,645 and £10,375 respectively.

The judge noted that, as is often the case, the experts disagreed as to which business sector was the most reliable indicator of multiplier selection (he could not say one expert had better answers than the other to the questions around the multiplier).

On balance, the judge took a figure mid-way between their figures – arriving at a final figure of almost £9,976,792 (which included an additional £1,891m real property uplift).

Matrimonial or non-matrimonial?

H had held 100% of the shares in the company since 2004 so they had one characteristic of non-matrimonial property. But given the valuable, non-passive growth of the shares since 2010, they had partly acquired status as matrimonial assets.

The experts had considered the business at the start of parties’ 2010 cohabitation and agreed a pre-tax valuations of H’s shares in September 2010 of £1.25m.

However, H successful persuaded the judge that the 2010 purchase of the UK subsidiary amounted to a ‘springboard’ event moving the company up a ‘different level’. He therefore increased the experts’ 2010 figure to £3,850,000 (from which tax from country A was to be deducted). The net figure amounted to £2,772,000.

The non-matrimonial portion of H’s company interest was therefore £7,204,792 (£9,976,792 minus £2,772,000).

The judge was then able to make the final orders which reflected a 38:62 split H’s favour. W was awarded a £2.5m lump sum (£756,000 less than what she would have been entitled to under the equality principle). H was to pay the lump sum in instalments over seven years.

Get in touch

We are experienced in advising clients with valuable business interests; and our team works closely with other experts to provide robust support to our clients.

The divorce team at Osbornes Law are specialists in financial remedies proceedings. For expert advice, contact us by:

• Filling in our online enquiry form; or
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