In instances where the parties in a matrimonial dispute hold shares in private companies, a valuation of these shareholdings is commonly required as part of the matrimonial proceedings and settlement process.
Where experts are appointed by solicitors on behalf of the court, the expert is required to report to the court and is usually acting as a Single Joint Expert (SJE) rather than a party expert for the individual parties.
Typical instructions
Whilst our instructions vary case to case, the typical instructions we receive are outlined as follows;
- A valuation of 100% of the share capital of the companies
- A valuation of the parties x% shareholding in the companies
- Assessment of the liquidity within the companies and opinion as to whether any surplus assets could be extracted by either party
- Provide an opinion as to the future maintainable earnings that either party is expected to generate from the company and the methods for extraction
- Provide the values net of tax in the instances of a sale of a shareholding, extraction of surplus assets or extraction of future maintainable earnings.
Valuation methods and key points to consider
When valuing a company for matrimonial cases, the normal market valuation principles apply. Outlined below are the circumstances in which each method is likely to be used and the key things to look out for when using an expert’s report.
Dividend yield
Used in the instance where the parties own a minority shareholding(s) and the company has declared historical dividends.
Key points to consider:
- Is the party in a position to impact the dividend decision, for example by being a director?
- Whilst a minority shareholding is technically less than 50% of the company, are they still the largest single shareholder?
Net Assets
Used on a break up basis where assets are sold under forced sale or going concern basis where the asset values outstrip future earnings. These methods value the assets of a company less its liabilities at a given date.
Key points to consider:
- Are assets included at the market value?
- Has a property expert provided valuations for any property assets?
- Have tax implications on the revaluation of any assets been considered?
Transaction based approach
Used in instances where recent transactions or offers have taken place or have been made for shares in the company.
Key points to consider:
- Who made the offer or purchased the shares? Were they a connected person to the company or parties?
- Have commercial reasons for previous transactions or offers been provided and considered and are they reasonable?
Future maintainable earnings
Used in the instance where the company has been making historical profits and is expected to continue to do so.
Key points to consider:
- How reasonable are any adjustments made to EBITDA?
- Do director’s remuneration, connected parties and other possible non-commercial value transactions appear to have been considered?
- How reasonable is the EBITDA multiple?
Discounted cash flow
Used in the instance where detailed reliable future cash flow forecasts can be provided and discounted to value the future expected cash flows.
Key points to consider:
- How reliable are the future cash flows?
- On what basis has the discount rate been calculated?
Other typical instructions and things to consider
Assessing liquidity requires a good understanding of the working capital requirements of a company and how this can fluctuate during the financial period. Any surplus assets in these situations tends to be either surplus cash or investment properties.
If the future maintainable earnings method has been used to calculate the value of the company generally this is the figure that will be used as an assumption for the future annual earnings of the company. This earnings figure is then used to determine future remuneration options based on the existing and future director/shareholding structure following any settlement.
Almost all of the tax calculations required in these cases are a mixture of Capital Gains Tax (CGT) and Income Tax. A key point to consider here are the articles of association for any company as these may specifically state how a shareholding should be valued in dispute or open market sale purchases.
Our forensics team have considerable experience in providing valuations and dispute advice in the instances of matrimonial disputes and would be very happy to provide a quote for our expert services. Please click here for more information and to contact the team.
