When a divorce involves a share in a private company, a partnership, or an LLP, getting the value right matters. The parties to the divorce, as well as the Family Court, must first understand what assets exist, and how much they are worth, before deciding how they should be divided, particularly as business interests are often the most valuable assets in the marriage. As such, reliable business valuations are crucial to deliver fair settlements.

Even in cases where the parties intend an amicable settlement, including mediation, a business valuation will assess what is usually one of, if not the, largest single element of the marital finances. Additionally, the financial disclosure requirements in Form E specifically ask for details and supporting documents for business interests, so an evidence- based number is essential.

Using evidence to support the valuation

This “evidence-basis” should feed through into the valuation itself. Parties may reasonably hold very different views as to the value of business interests – which, unsurprisingly, often favours their own financial position. As such, wherever a valuation can be underpinned by comparable benchmark data, academic research, underlying financial information, and other objective evidence, the scope for challenge from either side of proceedings is reduced.

Any valuation opinion will inevitably involve a degree of subjectivity. It is, after all, an opinion, and one where an objectively “correct” answer is rarely observable. However, credibility will increase with the appropriate application of facts to underpin a certain view.

What does valuation support look like in a divorce?

Amicable Separations

Not all divorces result in the parties being unable to agree on anything, and being able to settle certain matters out of court can create a virtuous cycle of making other things, including a valuation, run more smoothly. For example, it is possible for both parties to approach a valuation expert and request an ‘indicative’ valuation. This should involve as much diligence in drawing a valuation conclusion as would be expected if the case was going to court, but without the additional compliance obligations that apply to formal expert witness evidence (which will often make the process more cost-effective).

Consideration should be given to the implications of this approach, in particular, what this means in terms of overall proceedings if it is felt that the outcome of the valuation was inaccurate.

It is also possible for one party to approach a valuation expert alone – although where proceedings are intended to be amicable, the recommended approach is to ensure both sides are happy with the arrangement. If one side is driving the instructions, and ultimately paying for the service, this could create a perception of a conflict of interest, giving rise to bias.

Formal Proceedings

Once proceedings are issued, then a valuation expert will be appointed. Expert evidence is tightly governed by the Family Procedure Rules (FPR) Part 25 and Practice Direction 25B, which – amongst other things (such as the required report format) – sets out that an expert’s “overriding duty will be to the Court”.

What this “overriding duty” means, in practice, is that the role of the expert in UK courts is to inform the Court on matters in which they have expertise, and not – for example – to advocate for any particular position (other than one that they have formed independently) or opine on matters over which they do not have expertise. This differs from, for example, the US system (so familiar to us through books and films) where experts may be seen more to be there to help to argue their side’s case.

The role of the Single Joint Expert

In financial remedy cases, it should also be noted that the Family Court generally prefers a Single Joint Expert (SJE) – one independent valuer instructed by both sides – to avoid unnecessary cost and “battles of experts”. Recent guidance has re-emphasised that the SJE route is the default, and the bar for departing from it is high. Parties retain the right to ask written questions of the SJE and, where justified, seek permission for a second opinion. The SJE may be called to testify in Court, although in the majority of cases this won’t happen.

The appointment of an SJE has procedural implications. Generally, the SJE will liaise with both sides’ solicitors (rather than the parties themselves) and it is the solicitors who will formally engage the expert. Communication between the SJE and the parties should also be with both sides’ solicitors at all times, so as to avoid the creation of conflicts or a perception of bias.

Alternative valuation support

Valuation assistance doesn’t need to involve the provision of a valuation opinion. We have, for example, previously acted as “shadow experts”, serving as confidential advisers to one side of the divorce proceedings. The role of a shadow expert can be varied and should be agreed at the scoping of the engagement, but can may include helping to shape the joint “Letter of Instruction” to the formally appointed SJE, helping to draft proportionate questions, or advising on whether an application for a second opinion may be warranted.

Key considerations in seeking valuation support

The parties going through a divorce may have completely differing views on value, but the system is set up with a clear intent to return a valuation that is free from bias. Ensuring that the valuation support is competent and capable will mitigate against any dissatisfaction. It is one thing to feel aggrieved because you would have taken a different view on a subjective matter, and another to feel like you have been let down with an opinion that is flawed in a very fundamental way.

It is worth bearing in mind that the advice available isn’t necessarily limited to the use of a single expert witness in court proceedings; wider support may also be available to ensure that an appropriate outcome can be achieved, to which due consideration should be given.

How we can help

If business valuation is likely to be a feature of your divorce proceedings, we can provide support at every stage. Please fill out the form and we’ll be in touch to discuss how we can help.