One of the most common statements I hear when instructed to value a business in divorce proceedings is:
“The business isn’t really worth anything.”
Interestingly, this usually comes from the spouse who intends to retain ownership.
While many business owners genuinely believe this to be the case, separating couples often have very different perceptions of value. One party may have a detailed understanding of the business, while the other has limited access to financial information. In some cases, there may also be an incentive to present the business as being worth less than it really is.
The following examples are based on real cases, with identifying details changed.
Case 1 – The £175,000 group
A husband owned a holding company which, in turn, owned two profitable trading companies. His accountant had valued the entire group at £175,000.
The figure immediately appeared surprisingly low because it was broadly equivalent to the net asset value of just one company within the group.
The wife had access only to abbreviated accounts filed at Companies House. Without the full financial statements, it was impossible to produce a formal valuation, but one company alone held approximately £450,000 in cash and appeared to have generated around £180,000 of net profit during the previous year. On that basis, the proposed valuation looked significantly understated.
We requested further financial information but received the following response:
“I have not agreed to the instruction of a party-appointed expert … I do not intend to participate in this exercise.”
The refusal to provide information left the true value unresolved, and the wife subsequently applied to the court for disclosure so that an independent valuation could be undertaken.
This scenario is far from unusual. Without complete financial information, it is often impossible for either the parties or the court to understand the true value of a business.
Case 2 – When profits suddenly collapse
In another case, we valued a successful commercial decorating business at £1.65 million.
The husband, who managed the company, argued that the valuation was too high because trading had deteriorated. We therefore waited for the latest year-end accounts before carrying out an updated valuation.
Turnover remained broadly unchanged at £3.1 million, yet profits had fallen dramatically from £642,000 to £228,000.
A fall of this magnitude, without any corresponding reduction in sales, warranted further investigation. We requested additional financial records, including company and personal bank statements.
Our review identified more than £400,000 of expenditure that appeared unrelated to the business, including personal travel, luxury accommodation, payments to the husband’s new partner, increased entertainment costs including Oasis Tickets and a Box at Manchester City, personal clothing, cash withdrawals and an unauthorised pension contribution.
These items were added back when calculating maintainable earnings because they did not represent genuine operating costs.
The result was striking. Rather than decreasing in value, the business was worth approximately £2.2 million, increasing the value of the wife’s shareholding from £660,000 to £880,000.
The case ultimately settled on that basis.
Equally, there are many cases where an independent valuation confirms that a business has little or no transferable value because its success depends largely on the owner’s personal skills or future earnings. Independent valuation is about establishing the correct answer, whatever that answer may be.
Looking beyond the parties’ positions
These cases illustrate a recurring theme in family proceedings.
Business owners naturally focus on the risks within their businesses. They know which customers could leave, which contracts are uncertain and the commercial pressures they face every day.
The non-business-owning spouse often sees something different. They see a business that has supported the family’s lifestyle for many years and understandably struggle to reconcile that with claims that it has little or no value.
Neither perspective necessarily reflects fair market value.
The role of the independent expert is to stand back from the dispute and assess the business objectively, using recognised valuation methodologies and considering the business from the perspective of a hypothetical purchaser.
It is also important to distinguish between the value of the company and the value of an individual’s shareholding. In owner-managed companies, minority interests may attract discounts because they carry limited control, restricted transfer rights and little influence over dividends or future sale decisions.
Why independent valuations matter
For family lawyers, these issues can provide useful indicators of when an independent valuation is likely to be beneficial. Large fluctuations in profitability, incomplete financial disclosure, unusual expenditure or significant disagreement between the parties may all justify closer scrutiny.
Business valuation is rarely an exact science. It involves professional judgement, supported by financial analysis and recognised valuation techniques.
An independent valuation will not remove disagreement altogether, but it can provide the court and the parties with an objective framework for negotiations.
Ultimately, the aim is not to prove one spouse right and the other wrong. It is to arrive at a fair and realistic assessment of value that assists the court and helps both parties achieve an informed settlement.
Richard Brady, qualified business valuation expert, The Valuation Team
