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Latest Judgement On Splitting A Family Business After Divorce

12 March 2009

Although only a first instance Judgment in the High Court, any owner of a business going through a divorce or about to go through a divorce may draw some comfort from the Judgment of Justice Moylan in the case H and H reported at the beginning of 2009. The wife’s claim, following a 15 year marriage, hinged around the value of the husband’s restaurant business. (“Q”)

The wife estimated the business to be worth about 5.3 million pounds.  The husband estimated the business to be worth 1.7 million pounds.

Both parties adduced evidence from their respective expert accountants, an expense which the Judge said could have been avoided.  In delivering his Judgment Justice Moylan emphasised that the valuation of a business was an art, not a science and that the valuation was ultimately a matter of opinion, on which experts could differ, rather than the question of fact.  In the experience of the Judge, “valuations of shares in private companies are among the most fragile valuations which can be obtained”.

The Judge also pointed out that the value of the business was very significantly based on the fact that it had been operating successfully at the same site for over 30 years.  Accordingly, it would be artificial to define the business as solely matrimonial property (the marriage had lasted 15 years).

In oral evidence, the expert’s acknowledged that on the sale of a real business, the purchaser usually pays a base price and an earn out, based upon a warranted profit figure.  Part of the wife’s case was that the family had obtained benefits in kind from the business equivalent to £80,000 per year which the Court should take account of in valuing the  business.  However, not only were most of these alleged benefits completely unsubstantiated by the wife’s evidence but, as the Judge said, “I have considerable difficulty in accepting that a purchaser would pay £720,000 for hidden profits which are based on the owner having allegedly obtained undeclared benefits from the business”.  At the end of the day, the Judge rejected the proposal made by the husband, to the effect that the wife should receive 1.3 million after deduction of legal costs because the Judge felt that this would not meet the wife’s needs and would not give her a fair share of the capital. However, the Judge also rejected the wife’s claim that she should receive 3.8 million, on the basis that whatever the value of the business might be, it could not be regarded as part of the available resources and was not, therefore, subject to the sharing principle.

The wife received 67% of the non business but having taken into account the unrealisable value of the business, the husband retained 68% of the total capital assets.  The wife received maintenance payments equivalent to £60,000 per year in addition to the £20,000 per year payable for the children, together with school fees of between £45,000 and £60,000 per year from a net income of £250,000.

For more information about divorce and how it could affect your family business contact Susi Gillespie in our Family Law team.  Susi Gilespie is based at our Canterbury office and offers consultations from our Chatham office one day a week.
 

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