In every divorce where there is a business involved, there almost certainly will be the need to value it. Often, a Single Joint Expert (SJE) is appointed to do this, agreed by both parties.
The conclusion from the work of the SJE is always agreed upon by the Court and the Judge presiding over such matters. Remember the Judge is not an expert on financial matters, hence they get the opinion of a SJE to help them.
Fair-Result brings together unique accounting and finance skills. Indeed, we advise KC and Barrister Chambers on the financial aspects of Divorce through training and updating both KC’s and Barristers given our widespread knowledge.
The work of the SJE is determined by their terms of reference. It is important that these are correct as they direct what the SJE is being asked to do. The value of a business must be done on the basis of a ‘willing buyer and a willing seller’ – i.e. what someone would expect to pay for your business. That is not the headline valuation, it is after deducting debt and other matters, commonly referred to as ‘debt free, cash free’ to arrive at an equity valuation.
For most private businesses, owners have often significant Director Accounts balances. These are commonly amounts owed to the Company by the Directors. They typically represent private spending that the Director has incurred using Company Funds, which they are obviously required to pay back to the Company, normally through the use of Dividend payments.
With the significant issues arising from CBILS Loans and Bounce Back loans and changes in the tax regime for Businesses from April 2024, the declaration of dividends is now, no longer attractive to many business owners. This means Director Loans Account balances will stubbornly remain on the balance sheet of the business. BEWARE of this, because on the one hand, the business valuation by the SJE should include the amount due to the business from the Director Loan Account balance as it is a debt due to the business (i.e. assets). On the other hand, the Director (s) have a personal obligation to the business to repay the Director Loan Account Obligations.
It is important that when you complete your FORM E, declaring all of your assets and liabilities, you declare what your Director Loan Balance is. Very commonly, parties omit this from their FORM E, thus overstating their level of marital assets. Upon a settlement, if this is not considered then you could be saddled with a debt that needs repaying and it is not reflected in your settlement. We believe this is a major issue for parties who have divorced where they have not obtained appropriate advice from their legal advisors at the time.
Contact the team at Fair-result Limited to discuss how we can review how your business valuation was treated and the action you can take and most importantly if you are going through a divorce, how we can provide you with the expertise in this highly technical area. Remember lawyers aren’t accountants and this is about how the money flows in a divorce settlement.
