Business Assets on Divorce - May 07   

As part of divorce proceedings family lawyers, as well as the Courts, increasingly have to deal with situations where the matrimonial assets to be divided between a husband and wife consist of a private company. 

The general approach of both family lawyers and the Courts was to obtain a valuation of a company which looked at the value of the company as a whole and its liquidity.  More recently however the Court has had to consider whether this is in fact a fair approach or whether other issues need to be considered in relation to the company to achieve a fair and balanced result for both the husband and the wife in their divorce proceedings. 

This issue has most recently been considered by the High Court in the case of D v (1) D (2) B Ltd (2007). This case involved a couple who had been married for 35 years.  The wife had ceased working upon the birth of their children.  The husband therefore was the sole breadwinner.  One of the important assets of the marriage that the Court had to consider was the husband’s various companies which had all been built up during the course of the marriage. 

As part of the divorce proceedings an expert was instructed to value the husband’s companies and to advise on the husband’s ability to generate cash from the companies in order to make a payment of capital to the wife to achieve a financial “clean break”.   

In the High Court the Judge found that the expert report had not taken a sufficiently commercial approach when valuing the husband’s business interests.  A large part of the success of the husband’s businesses was due to the personal relationships and the reputation that the husband had developed over the years. 

Further, the businesses were of a very specialist nature.  On this basis, the Judge felt that it could not be assumed that a willing buyer would exist in order to raise sufficient capital to pay the wife.  The Judge stated that the practicalities of finding a buyer and the possible time scale involved needed to be considered, as well as other factors in relation to the terms of sale, the handover and competition.  The matter therefore needed to be considered in a more commercial manner taking into consideration the above factors.  The Court stated that family lawyers who are seeking to achieve a clean break on behalf of their client owes a duty to consider commercial alternatives such as the ability of the company to lawfully and sensibly finance one or both parties. 

In summary, if a husband and wife are looking to divorce and there are business assets to consider, it is important that both the parties and their lawyers look beyond just the normal valuation of the company and explore other options, if necessary with the assistance of commercial advisors to make sure that a fair result is achieved.