Typically, the words ‘business valuation’ make you think of something to do with stock markets. Indeed, when it comes to publicly listed companies, a business valuation is almost always a key component of any investor’s investment thesis.
Though, despite our strong tendency to associate business valuations with stock investing, there are a number of other instances in which
business valuations are heavily relied upon. Selling a business, submitting an insurance claim, refinancing a business loan; valuations are
essential to any of these.
Where a marriage comes to an unfortunate ending, and where at least one spouse owns a business - a business valuation will often be required.
Business valuation in the divorce process
The division of property is a necessary, often complex process that needs to occur during a divorce. Commonly divvied up between the ex-spouses are assets such as the matrimonial home, motor vehicles, shares, bank accounts, investment property, furniture, and superannuation.
When a business is involved in a divorce settlement, its value must be added to this collective asset pool. How come? Pursuant to the Family Law Act 1975, Australian courts categorise a business interest as ‘property’. This applies to all types of business interests, be they a partnership, sole trader, company, or trust structure.
Unlike the above assets, however, valuing a business can be an onerous, resource-intensive task. In Australia, there are several business valuation methodologies that can be called upon. Their applicability is highly contextual, with the type of business structure and/or ownership position (i.e., controlling or non-controlling interest) typically guides the valuer’s decision-making process.
Getting a business valued
Initiating contact with accountants who are well-versed in business valuation—such as various senior managers and partners at Ashfords—is typically recommended to spouses who have decided to divorce.
This recommendation holds regardless of whether the business(es) requiring a formal valuation is (are) shared between the two divorcees or wholly owned by one of them. Doing so together helps ensure that the settlement of shared property happens in a manner that is as fair and legitimate as possible.
Marriage and de facto relationship break-ups are understandably some of the most stressful, taxing times in separating spouses’ lives—not to mention the lives of their family and friends. Unfortunately, when a divorce involves a business—particularly a small, family-run business—this process is often more painful.
Seeking a professional business valuation helps alleviate some of this stress, and will streamline the settlement process by having a document that can be relied upon by both parties.