How is a business valued in divorce? England and Wales guide

A business is rarely just a number on a balance sheet.

It may have taken years to build, employ several people and provide most of the family’s income. Its reputation may be closely tied to one spouse’s skill, energy and relationships. There may be fellow shareholders, business partners, bank borrowing and customers who have no wish to become involved in somebody else’s divorce.

For the other spouse, however, the company may represent a substantial part of the wealth created during the marriage. Being told that it is “too complicated”, “not worth anything without me” or “all tied up in the business” is unlikely to provide much reassurance.

The difficult question is not simply what the business is worth on paper. It is what the spouse’s interest is realistically worth, what income it can sustainably produce and whether money can be extracted without damaging the company or creating disproportionate tax.

I have always thought the word “value” gives a slightly misleading impression of precision here. Two experienced accountants can examine the same private company and reach different conclusions without either being incompetent or dishonest. A valuation is an informed opinion, not a price verified by an actual sale.

This guide explains how a business is valued in divorce in England and Wales, what information must be disclosed, when a forensic accountant may be needed and how the court can deal with the resulting value.

Quick answer: How is a business valued in divorce?

A business is normally valued by assessing the market value of the particular spouse’s interest, rather than simply reading the net-assets figure in the accounts.

The appropriate method depends on the business. A profitable trading company may be valued by applying a suitable multiple to maintainable earnings. An investment or property company may be valued principally by reference to its underlying net assets. A larger company with reasonably predictable future cash flows may justify a discounted cash-flow calculation.

The valuation should also consider debt, tax, working-capital requirements, the rights attached to the shares, the owner’s importance to the business, minority-shareholding restrictions and how much money can realistically be extracted.

Not every case requires an independent expert. Where expert evidence is necessary, a forensic accountant is commonly instructed jointly by both spouses. The court’s permission is required before expert evidence can be relied upon in proceedings.

The business is not automatically divided or sold. One spouse commonly retains it while the other receives property, savings, pensions, a lump sum or staged payments. The court aims for a fair overall outcome while avoiding unnecessary damage to a viable income-producing business.

Contents

• What counts as a business interest in divorce?
• Is a business always a matrimonial asset?
• Why does the business need to be valued?
• Does every divorce require a formal business valuation?
• Who values a business during divorce?
• What business information must be disclosed?
• Value, income and liquidity: Three different questions
• The main business-valuation methods
• How is business goodwill valued?
• Are minority and illiquidity discounts applied?
• How different business structures are valued
• What if the business existed before the marriage?
• What happens to growth after separation?
• How are tax and extraction costs treated?
• Are retained profits and company cash included?
• Can business value and income both be counted?
• Can the court transfer shares or force a sale?
• How is a settlement funded where one spouse keeps the business?
• What if business income or assets are hidden?
• Can a business valuation be challenged?
• What valuation date is used?
• The business-valuation process step by step
• How much does a business valuation cost and how long does it take?
• Can a prenuptial agreement protect a business?
• Business valuation in divorce: Three examples
• Common mistakes to avoid
• Frequently asked questions

What counts as a business interest in divorce?

A business interest is not limited to shares in a conventional private limited company.

It may include a sole-trader business, partnership interest, membership of a limited liability partnership, shares in a trading company, a family investment company, a professional practice, a franchise or a company holding property and investments.

Less obvious interests can also matter. A spouse may have share options, growth shares, preference shares, carried-interest rights, a director’s loan account, partnership capital or an indirect interest held through a trust or holding-company structure.

The court looks at the substance of the financial resource rather than simply the label placed upon it.

A directorship by itself does not necessarily mean that the director owns part of the company. Conversely, a person may exercise substantial control or receive economic benefits despite holding only a minority of the formal shares.

Is a business always a matrimonial asset?

No. The business interest must be disclosed and considered, but it is not necessarily all matrimonial property.

A company established or acquired during the marriage using marital earnings will commonly be matrimonial. The sharing principle will ordinarily apply to its value, although needs and the wider circumstances can justify a different overall division.

A business established before the marriage, inherited from family or received as an external gift may be wholly or partly non-matrimonial.

The Supreme Court confirmed in Standish v Standish that the sharing principle applies to matrimonial property rather than non-matrimonial property.

Non-matrimonial status does not make a business untouchable. The court can use all available resources to meet reasonable housing, income and other needs. A business may also become matrimonial where the spouses have treated it as part of their shared wealth over time.

My wider guide explains the distinction between matrimonial and non-matrimonial property in a divorce financial settlement.

Why does the business need to be valued?

The court cannot assess whether a proposed settlement is fair without understanding the available resources.

A business valuation may help establish the value of the owner’s shares or partnership interest, the income that can reasonably be drawn, the company’s borrowing and working-capital requirements and whether funds are available to pay a lump sum.

Those findings can affect the division of the family home, savings and pensions as well as any claim for spousal maintenance.

The purpose is not necessarily to produce a sum that somebody will immediately receive. A company may be valuable but impossible to sell quickly. It may generate substantial income but have relatively modest transferable value. It may hold expensive assets but need them to operate.

A sound valuation therefore provides context as well as a figure.

Does every divorce require a formal business valuation?

No. Proportionality matters.

A sole-trader business depending entirely on one person’s continuing labour may have little saleable value beyond equipment, stock and transferable goodwill. If the figures are modest and both spouses understand the position, a formal report may cost more than the issue justifies.

A valuation is more likely to be necessary where the business is a substantial part of the family wealth, the spouses disagree materially about its value, there are several shareholders or companies, profits fluctuate, business property is involved or one spouse controls information unavailable to the other.

Expert evidence may also be required where the settlement depends on extracting a substantial lump sum, distinguishing pre-marital value from marital growth or assessing whether the company can support both a capital payment and continuing income.

Form E requires an initial estimate of the business interest and supporting information but expressly recognises that a formal valuation is not essential at that stage.

Before commissioning a lengthy report, the sensible question is what issue the expert is being asked to resolve. A £20,000 valuation dispute should not generate £30,000 of accountancy and legal costs.

Who values a business during divorce?

A business is commonly valued by a forensic accountant or appropriately experienced chartered accountant familiar with private-company valuation and financial-remedy proceedings.

Where court proceedings are under way, the usual approach is to instruct a single joint expert. Both spouses contribute to the instructions and receive the same independent report.

The expert’s overriding duty is to assist the court rather than advance either spouse’s preferred answer.

The use of expert evidence is governed by Part 25 of the Family Procedure Rules and Practice Direction 25D.

The court’s permission is required before expert evidence can be placed before it. Although an expert can technically be instructed privately before permission in financial proceedings, doing so without agreement or directions may produce an expensive report that cannot be relied upon.

What is a shadow expert?

Either spouse may obtain confidential advice from another accountant about the single joint expert’s report. This adviser is sometimes called a shadow expert.

The shadow expert can help identify factual errors, unexplained assumptions or appropriate clarification questions. Their private opinion does not become evidence merely because one spouse prefers it.

Separate expert evidence can be placed before the court only with permission, which is not granted simply because a party dislikes the joint expert’s conclusion.

What business information must be disclosed?

Both spouses owe a duty of full and frank financial disclosure. The business owner must provide sufficient information for the interest, income and liquidity to be understood.

In contested proceedings, Form E asks for details of every business interest, the extent of the shareholding or partnership interest and an estimate of its current value.

It also requires the last two years’ business accounts, details of any material changes since those accounts, the value of sums owed to the spouse through a director’s loan or capital account and an estimate of potential Capital Gains Tax.

Further documents may be needed, including current management accounts, corporation-tax returns, personal tax returns, business bank statements, forecasts, budgets, loan agreements, shareholder agreements, the company’s articles, dividend records and details of connected businesses.

Publicly filed accounts can be obtained through the official Companies House search service. They are useful, but may be abbreviated, historic and insufficient to show the company’s present trading position.

What if the latest accounts are out of date?

Annual accounts may describe a financial year that ended many months earlier. A fast-growing or struggling business may have changed significantly by the time the divorce is considered.

Management accounts, current bank information, order books and updated forecasts can help bridge that gap.

The accountant should also investigate unusual recent events, such as the loss of a major customer, an exceptional contract, restructuring, new borrowing, a regulatory problem or a substantial post-year-end dividend.

Value, income and liquidity: Three different questions

These concepts are related but should not be confused.

What is the business worth?

This asks what a hypothetical purchaser might pay for the particular interest, allowing for its rights, risks and restrictions.

What income can it produce?

A company may provide salary, dividends, pension contributions, benefits and other remuneration. The court is interested in sustainable future income rather than simply the amount drawn in one selected year.

What money can be taken out?

Liquidity concerns the amount and timing of funds that can realistically be extracted.

A profitable company may still need cash to pay employees, tax, rent, suppliers, loan instalments and future investment. Taking every pound shown in the bank account could leave the business unable to trade.

Likewise, an asset-rich property company may have a high paper value but little available cash unless property is sold or borrowing is increased.

This distinction is one of the most important in the whole exercise. A spouse cannot spend a valuation, and a company cannot safely pay money that it does not have.

The main methods used to value a business

No single method suits every business. The expert may use one principal approach and test the result against another.

Maintainable-earnings valuation

This method is commonly used for profitable trading businesses.

The accountant first assesses sustainable or maintainable earnings. Historic profit is adjusted to remove exceptional items, non-recurring costs and expenses that do not reflect normal commercial trading.

The owner’s remuneration may also require adjustment. A director who takes a small salary and substantial dividends should not necessarily be treated in the same way as an unrelated employee paid a full market salary.

A valuation multiple is then applied to the adjusted earnings. The multiple reflects the industry, business size, growth prospects, customer concentration, management strength, market conditions and risk.

The resulting enterprise value is normally adjusted for debt, surplus cash and other relevant balance-sheet items to reach the equity value.

Net-asset valuation

A net-asset valuation considers the market value of the company’s assets less its liabilities.

It is particularly relevant to property-investment companies, family investment companies and businesses whose value lies principally in assets rather than trading profit.

The figures in the accounts may require substantial adjustment. Property might be shown at historic cost, investments may have moved in value, and book values may bear little relation to current market values.

Tax that would arise on a sufficiently likely disposal may also need to be considered.

Discounted cash-flow valuation

A discounted cash-flow calculation estimates future cash generated by the business and converts it into a present value.

It can be useful for a larger company with sufficiently reliable forecasts. It is highly sensitive to assumptions about growth, margins, investment, risk and the discount rate.

A slight change to one assumption can materially alter the result. It is therefore less persuasive where forecasts are speculative or historic performance has been volatile.

Dividend or income-yield approach

An income-based approach may be relevant to a minority shareholding where the holder has limited control and receives value principally through dividends.

The expert examines the sustainable dividend stream and the return a hypothetical investor would require.

This approach may be inappropriate where dividends have been artificially suppressed by a controlling shareholder or bear little relationship to the company’s true capacity to distribute profits.

Recent transactions and offers

A genuine arm’s-length share sale, investment or firm offer can provide useful evidence of market value.

Care is required. The transaction may involve a strategic buyer willing to pay a premium, different share rights, earn-out provisions or information unavailable to an ordinary purchaser.

An informal expression of interest is not necessarily reliable evidence that the company can be sold for the suggested amount.

How is business goodwill valued?

Goodwill is the value of the business beyond its identifiable physical and financial assets.

It may arise from a recognised brand, repeat customers, contracts, intellectual property, location, systems, workforce or commercial reputation.

The critical issue is whether that goodwill is transferable.

A business that continues to attract customers if its owner leaves may possess substantial enterprise goodwill. A consultancy depending almost entirely on one person’s skill and personal relationships may have far less saleable goodwill.

This does not mean that a highly skilled owner’s future earnings are irrelevant. The business may have limited capital value while still providing substantial income and earning capacity.

Personal earning capacity should not simply be converted into a saleable asset that does not exist. Equally, an owner cannot automatically reduce a valuable organisation to “just me” where staff, contracts, systems and an established brand would remain attractive to a purchaser.

Are minority and illiquidity discounts applied?

Possibly, but not automatically.

A 25% holding in a private company is not necessarily worth precisely one-quarter of the whole company. A minority shareholder may be unable to appoint directors, determine dividends, force a sale or obtain unrestricted access to information.

The shares may also be difficult to sell because the company’s articles or shareholder agreement restrict transfers.

These factors may justify a minority or illiquidity discount. The appropriate treatment depends on the actual rights and commercial circumstances.

A discount may be less appropriate where the shareholder effectively exercises control despite the formal percentage, where the company operates as a quasi-partnership or where the divorce settlement itself will result in a sale or buyout at a different value.

The expert should examine the documents rather than apply a standard discount by habit.

How different business structures are valued

Sole traders

A sole trader and the business are not legally separate.

The valuation may include equipment, stock, work in progress, debts due to the business and transferable goodwill, less business liabilities.

Many personal service businesses have relatively modest sale value because clients are paying for the individual’s continuing work. The owner’s sustainable income may therefore be more important to the settlement than a capital valuation.

Partnerships

The accountant will examine the partnership agreement, the spouse’s profit share, capital account, retirement provisions and any restrictions on transferring the interest.

A partner may not be entitled to sell their share to an outsider. The amount receivable on retirement may also differ from a simple proportion of the partnership’s overall value.

Third-party partners’ rights must be respected. The family court cannot treat their property as belonging to the married couple.

Limited liability partnerships

Professional practices commonly operate as LLPs.

The relevant interest may include the member’s capital account, current account, profit allocation and contractual rights on retirement or departure. The LLP may possess little transferable goodwill if clients and profits depend on the continuing professionals.

Private limited companies

The shareholder owns shares, not the company’s underlying assets.

The valuation therefore concerns the rights attached to the shares. The expert examines the company’s trading performance, assets, liabilities, borrowing, tax, management structure and shareholder restrictions.

Where the spouse controls the company, the assessment may also consider dividend policy, remuneration and the ability to release funds.

Family investment and property companies

These companies are often valued principally by reference to their underlying investments or property, less liabilities and appropriate tax.

Different share classes may carry different voting, income and capital rights. Parents, children, trusts or other relatives may also own shares.

The family court can consider the divorcing spouse’s interest, but it cannot simply appropriate value that legally belongs to other family members.

Franchises

A franchise’s value depends on profitability, location, the remaining franchise term, renewal prospects, fees and restrictions imposed by the franchisor.

The franchise agreement may prevent transfer without consent or provide that important equipment, intellectual property and branding remain the franchisor’s property.

What if the business existed before the marriage?

A business owned before marriage may contain a non-matrimonial element.

The starting value should be examined rather than assuming that the whole current value is either protected or matrimonial.

Growth during the marriage may result from several sources. Some may reflect wider market conditions or passive appreciation. Some may arise from profits retained and work performed during the marriage.

Where the owner has devoted substantial effort to developing the company during the relationship, at least some of the growth may be regarded as the product of marital endeavour.

Identifying the starting value can be difficult where historic accounts are limited or the company was then small but held considerable latent potential. The court undertakes a broad evaluation rather than pretending that a speculative historic figure can be calculated with perfect accuracy.

Even where part of the business remains non-matrimonial, the court can call upon it if the matrimonial resources are insufficient to meet reasonable needs.

Similar principles apply where the business was inherited or received through a family gift. My separate guide explains how inherited and gifted property is treated on divorce.

What happens to business growth after separation?

There is no simple rule that everything earned or created after the separation date is automatically excluded.

The court examines the source of the growth and the wider circumstances.

Growth resulting from the owner’s substantial work after a final separation may have a stronger non-matrimonial character. Passive growth in an asset built during the marriage may be treated differently.

Some later value may also represent the delayed benefit of work, investment and decisions made while the spouses were together.

The date of separation, length of the proceedings, contributions after separation and whether family resources continued to support the business can all matter.

A lengthy delay should not automatically allow either spouse to capture or exclude every subsequent movement in value. The court seeks a fair assessment of what the marriage produced and what genuinely arose later.

How are tax and extraction costs treated?

The gross business value is not necessarily the amount available to the owner.

Selling shares may produce Capital Gains Tax. Selling assets within the company may create tax at company level, followed by further tax when the proceeds are extracted personally.

A dividend-funded lump sum may require the company to distribute considerably more than the net amount ultimately received by the other spouse.

The expert may therefore be asked to calculate the tax consequences of different routes, including a share sale, asset sale, dividend, company purchase of shares or staged extraction.

Tax should not be deducted merely because a hypothetical liability can be imagined. The court will consider whether the disposal or extraction is sufficiently real and likely under the proposed settlement.

Tax rules and reliefs change, and a family-law valuation report does not always replace detailed specialist tax advice.

Are retained profits and company cash included?

Money held by a company belongs to the company, not directly to its shareholder.

It should not simply be added to the spouse’s personal bank accounts. Company cash may be required for tax, working capital, loan covenants, future contracts or investment.

However, cash that is genuinely surplus to the company’s requirements may increase the share value or provide a source from which a settlement can be funded.

Retained profits may also be relevant to income. A controlling shareholder cannot necessarily avoid maintenance or reduce apparent resources simply by leaving distributable profits inside the company without a commercial reason.

Director’s loan accounts

A credit director’s loan account means that the company owes money to the director. It is normally disclosed separately and may be repayable, subject to the company’s finances and any contractual restrictions.

An overdrawn director’s loan account means that the director owes money to the company. It may amount to a personal liability and can carry tax consequences.

The accounts should not be read without understanding which way the loan runs.

Can business value and future income both be counted?

This is sometimes described as the problem of double counting.

A company may be valued by capitalising the profits it is expected to earn. The same business then continues to provide the owner’s salary and dividends, which may be relevant to maintenance.

That does not mean the court must always ignore one or the other. A business can properly be both an asset and an income source.

The court must nevertheless avoid an unfair result in which the same economic benefit is treated as freely available twice.

It may distinguish between a commercial salary for the owner’s future work, the investment return already reflected in the company value and surplus profits that can safely be distributed.

This is another reason why the expert’s instructions should cover maintainable income and liquidity rather than asking only for a headline valuation.

Can the court transfer shares or force the business to be sold?

The family court has wide property-adjustment powers and can order shares to be transferred between spouses.

That does not mean a share transfer is the usual answer.

Making former spouses minority and controlling shareholders in the same private company can prolong conflict and create serious commercial difficulties. The company’s articles, shareholder agreement and third-party rights may also restrict what can be done.

The usual preference is for the spouse already operating the business to retain it, with the other receiving value through different assets or a lump sum.

A court can make an order involving sale where necessary, but forcing the sale of a viable trading company is generally a measure of last resort. A hurried sale may destroy value, jobs and the income from which the family still depends.

What is a Wells order?

In an unusual case, the court may leave both spouses sharing the future risk and reward of the business rather than attempting to convert an uncertain value into immediate cash.

This may involve transferring shares or giving one spouse a defined interest in future sale proceeds. It is sometimes called Wells sharing after the case of Wells v Wells.

Such an arrangement can be considered where valuation or liquidity is genuinely uncertain. It conflicts with the attraction of a clean break and can leave one spouse holding an illiquid minority interest controlled by the other, so it is approached cautiously.

How is a settlement funded where one spouse keeps the business?

The simplest outcome is often for the business owner to retain the company while the other spouse receives a greater share of liquid or readily transferable assets.

That might mean transferring the family home, savings or investments, or adjusting pension provision. My guide to pensions and divorce explains why pension and business values should not be compared casually.

Where the non-business assets are insufficient, the owner may pay a lump sum from available personal resources or funds extracted from the company.

The payment can sometimes be made by instalments. The order should address the amount, dates, interest, security, early repayment and what happens if the company underperforms.

Other possibilities include refinancing, selling a non-core business asset, bringing in an outside investor or arranging a company purchase of shares. Each can have tax, legal and commercial consequences.

The payment schedule must be realistic. An order that strips the company of the cash required to trade may damage both spouses by destroying its value and future income.

What if business income or assets are hidden?

A business can provide greater opportunity for manipulating the apparent financial position than an ordinary salary does.

Possible warning signs include unexplained falls in profit, delayed invoices, excessive personal expenditure through the company, transfers to connected businesses, sudden increases in debt, suppressed dividends or assets disappearing shortly before disclosure.

None of these proves dishonesty. A fall in profit may be entirely genuine, and a company can have sound commercial reasons for retaining cash.

Where questions remain, the court can order further documents and explanations. A forensic accountant may compare accounts with bank statements, tax returns, management information and historic trading patterns.

Deliberate material non-disclosure can lead to adverse inferences, costs orders and a financial order being set aside.

The court can also restrain or reverse certain transactions intended to defeat a financial claim. Moving assets into another company or transferring shares to a relative is not a reliable method of protection.

Can a business valuation be challenged?

Yes, but disagreement should begin with the report rather than the expert personally.

Either spouse can put proportionate written questions seeking clarification. Unless the court directs otherwise, questions under Part 25 must ordinarily be asked once, within ten days of service of the report and for clarification rather than cross-examination.

Questions might address an apparent factual mistake, the treatment of an exceptional expense, the selected earnings multiple, a missing liability or the assumptions behind projected income and liquidity.

A party may also obtain confidential advice from a shadow expert.

A second expert report cannot automatically be introduced merely because it produces a more favourable figure. The court considers whether further evidence is necessary and proportionate.

Ultimately, the judge is not bound to accept every conclusion in an expert report. The report is evidence assisting the court, not the decision itself.

What valuation date is used?

The financial position should normally be reasonably current when the settlement is agreed or the court makes its decision.

There is no universal rule that one historic date must be used regardless of later events.

An expert may value the business at the date of the report and update significant movements before a final hearing. A material loss of a customer, new investment, economic shock or completed sale may make an earlier valuation unreliable.

The court must also decide how to treat changes after separation. A later increase or decrease may result from market conditions, marital endeavour, post-separation work or a combination of them.

Valuation evidence should therefore state both its effective date and the assumptions on which it depends.

The business-valuation process step by step

Stage 1: Disclose the interest

The business owner identifies every relevant company, partnership, directorship, loan account and indirect interest and provides the required financial documents.

Stage 2: Identify the actual dispute

The spouses consider whether the disagreement concerns the headline value, maintainable income, pre-marital element, tax, liquidity or alleged non-disclosure.

Defining the question keeps the expert’s work proportionate.

Stage 3: Consider whether an expert is necessary

The parties may agree a reasonable value from reliable information. If not, they obtain names, estimated fees and timescales from suitably experienced accountants.

Stage 4: Obtain directions

During contested proceedings, the court can give directions about valuation and expert evidence at the first appointment under Part 9 of the Family Procedure Rules.

The order normally identifies the expert, the issues to address, documents to be supplied, timetable and responsibility for fees.

Stage 5: Agree the letter of instruction

The letter should ask focused questions. These may include the share value, maintainable earnings, sustainable net income, liquidity, tax, minority discounts, pre-marital value and the consequences of proposed extraction routes.

Stage 6: Provide the documents

The expert receives accounts, management information, tax records, constitutional documents and other evidence required for a reliable assessment.

Both spouses should see the information sent to a single joint expert.

Stage 7: Consider the report

The parties check the factual information, assumptions, valuation range, tax treatment and liquidity conclusions.

Appropriate written clarification questions can then be raised.

Stage 8: Negotiate the overall settlement

The business is considered with the home, pensions, savings, debts, income and needs. The objective is a fair and workable settlement, not merely the mechanical division of the expert’s figure.

Stage 9: Obtain a court order

An agreed settlement should be recorded in a consent order and approved by the court. If agreement is impossible, the judge decides the outcome in the financial-remedy proceedings.

The current court fee is £62 for a financial consent-order application or £321 to start a contested financial-order application.

How much does a business valuation cost and how long does it take?

There is no standard fee. Cost depends on the number of companies, quality of the records, valuation questions, corporate structure, tax issues and whether property or overseas interests are involved.

A straightforward valuation of a modest trading company will cost much less than investigating a group containing several subsidiaries, trusts and substantial property.

The court can limit an expert’s fees. The spouses are normally jointly responsible to the expert unless the court directs otherwise, although the final financial order can address how the cost is ultimately borne.

The timetable also varies. Delay often arises not from the calculations themselves but from incomplete records, late management accounts, disputed instructions or unanswered requests for information.

Beginning disclosure early and agreeing focused questions can materially reduce both time and cost.

A person with a low income or limited savings may qualify for help with the court fee through the Help with Fees scheme. That does not normally pay the forensic accountant’s professional charges.

Can a prenuptial agreement protect a business?

A prenuptial or postnuptial agreement can record that an existing business, inherited shares or future business growth should remain with one spouse.

Such agreements are not automatically binding under the current law in England and Wales. The court should nevertheless give effect to an agreement freely entered into with a full appreciation of its implications unless it would be unfair to do so.

Its prospects are stronger where both spouses received independent advice, made full disclosure, signed without pressure and understood the consequences.

The agreement cannot safely ignore reasonable needs or the interests of children. The court may also require current business information before deciding whether the proposed settlement remains fair.

An agreement drafted when the company was worth £50,000 may need review if it later becomes the family’s principal source of wealth and income.

Business valuation in divorce: Three practical examples

A profitable owner-managed company

Riley owns all the shares in a company providing specialist engineering services. It has stable profits, several employees and repeat commercial customers.

An accountant may adjust the historic profits to provide a commercial salary for Riley, remove exceptional expenditure and calculate maintainable earnings. A market multiple is then applied before adjusting for debt and surplus cash.

The company may have meaningful transferable goodwill because its systems, employees and client contracts do not depend entirely on Riley personally.

A personal consultancy

Morgan trades through a limited company but personally carries out almost all the work. Clients engage Morgan for individual expertise, and there are no employees or long-term contracts.

The company may hold some cash and equipment but have little saleable goodwill. Morgan’s sustainable earning capacity may be highly relevant even if the shares have modest capital value.

The court should not simply capitalise a lifetime of future personal work and treat it as money already owned.

A family property company

Taylor owns 30% of a company holding several commercial properties. The remaining shares belong to siblings, and the company’s articles restrict transfers.

The valuation may begin with the current market value of the properties, less borrowing and relevant tax. The accountant must then assess Taylor’s particular share rights, lack of control and the practical market for the minority interest.

Taylor is not automatically treated as owning 30% of each building, and the siblings’ interests do not become divorce assets.

These examples are illustrative only. Small differences in share rights, needs, tax, liquidity and business dependence can materially change the result.

Common mistakes when valuing a business in divorce

Using the balance-sheet figure as the business value

Accounts are prepared for reporting and tax purposes, not necessarily to establish market value. Book values may omit goodwill or record property at historic cost.

Assuming company cash belongs personally to the owner

The company is a separate legal person. Cash may be needed for tax, suppliers, employees and working capital.

Ignoring the director’s loan account

A loan owed to the director may be a separate asset. An overdrawn account may be a liability.

Confusing turnover with profit

A company with £2 million turnover is not necessarily valuable or highly profitable. Margins, costs, debt and sustainable earnings matter.

Assuming the expert’s figure is available in cash

An illiquid private-company interest cannot necessarily be sold or extracted without tax and commercial damage.

Valuing future personal work as though it were an existing asset

A business dependent entirely on the owner may have substantial income but limited transferable goodwill.

Ignoring pre-marital ownership

A business brought into the marriage may contain a non-matrimonial element, although marital growth and needs still require consideration.

Applying an automatic minority discount

The rights, control and commercial reality of the shareholding must be examined.

Failing to update the valuation

A report can become unreliable after a major trading change, lost customer, new contract or economic event.

Ordering an unaffordable lump sum

A theoretically fair sum is not workable if extracting it would render the company insolvent or destroy its ability to generate income.

Business valuation in divorce: Frequently asked questions

A valuation is a tool, not the settlement

The best business valuation does not answer every question in a divorce. It provides evidence from which a fair and workable settlement can be constructed.

A figure may show the theoretical value of the shares, but it must be read alongside income, tax, liquidity, risk and the needs of both households. A company worth £1 million on paper may not be capable of producing a £500,000 cheque without borrowing, selling assets or jeopardising its future.

Likewise, describing a business as personal, illiquid or difficult to value does not make it disappear. The owner must provide proper disclosure, and the other spouse is entitled to understand a resource that may have supported the family throughout the marriage.

The most useful outcome will often preserve the business with the person best placed to operate it while providing the other spouse with fair value through assets or payments that can actually be delivered.

That requires less drama than the phrase “taking half the business” suggests, but rather more care than reading the latest accounts and dividing the figure by two.

Further practical information is available in my collection of family law guides for England and Wales.

Last legally reviewed: 3 August 2026

This guide is based on general principles of English and Welsh law, is intended for informational purposes only, and does not constitute legal advice or establish a professional relationship.

About the author, Clare Lowes