When a marriage, sadly, breaks down it is necessary sometimes to look at the family business and agree how it should be dealt with. For example very often it is possible to preserve the family business, since it is the business that has provided prosperity in the past and will be a source of income for the future.
In a recent article I pointed out the importance of obtaining the appropriate expert accountancy evidence to deal with such matters as the capital value of the business, recapitalisation and liquidity. These issues are core to reaching a financial settlement within divorce proceedings. There are other issues relating to practical matters such as a spouse resigning from the company, either in an executive capacity as a director, or resigning as an employee. In those circumstances, the person who takes on the company will provide, typically, indemnities with respect to future trade liabilities and potential tax liabilities.
For a number of years the court has been preoccupied with various issues relating to how a company should be valued with respect to divorce proceedings. For example, a number of different values can be attributed to a company. A company will have a value that was amassed prior to the marriage ceremony, a different value when the parties separated and a further value if the case ends up in court later on. This conflicting evidence can impede how a case may settle.
The courts, however, are seeking to adopt a more pragmatic view and in the case of Martin v. Martin which was reported in the Court of Appeal in 2018 the Judge adopted what may be viewed as a more arbitrary approach, applying a straight line apportionment to the increase in the value of the business over its life span. Quite clearly no business develops and grows in this way, but with a growing focus on fairness by the Judges in decisions they make, we can assume that the focus of the Judge was not just on what is correct in terms of the business valuation, but what is fair and just. In other words, the judge may seek to disregard complicating variables, and instead look at the value of the business during its lifetime and then apportion that increase in the value of the business accrued during the marriage.
In the first instance therefore, it is important to commission the appropriate report from an experienced forensic accountant who deals with such matters, but in addition, to adopt the type of pragmatism that the case of Martin v. Martin brings to the table when seeking to negotiate a settlement, as opposed to going through a court process of litigation, which is to be avoided because of additional cost and delay.
When dealing with a business as part of a divorce, it is important that the correct valuation evidence is obtained and appropriately evaluated. The family department here at Blythe Liggins are always willing to assist and can be contacted at email@example.com or 01926 831231.