Business valuation evidence assessed in contested divorce case involving substantial shareholding
Background
The parties in this case were married for seventeen years and had two children together, both of whom were now young adults. The central issue in the financial provision proceedings related to the valuation and division of a privately owned business in which the husband was the sole director and shareholder. The business had been incorporated during the marriage and was accepted by both parties to be matrimonial property. Disputes arose concerning its value and how any award should reflect the overall asset picture.
The wife sought a significant capital sum and a pension share. The husband argued that the value of the company had been overstated and that any award should take account of liquidity issues and future risk to the business.
Key legal issues
The primary legal issue for the court was how to properly value the husband’s shareholding in the company for the purpose of assessing the matrimonial property. This engaged the principles under section 10 of the Family Law (Scotland) Act 1985, particularly the fair sharing of net matrimonial property as at the relevant date.
A further issue arose under section 9(1)(a), namely whether a capital sum should be awarded to equalise the net matrimonial assets between the parties, and under section 9(1)(b), whether any economic disadvantage suffered by the wife merited a compensatory award.
Expert evidence and valuation dispute
Each party led expert accountancy evidence. The husband’s expert applied a discounted cash flow analysis, resulting in a lower valuation based on speculative future earnings. The wife’s expert adopted a more cautious, market-based approach, valuing the company as a going concern with reference to comparable transactions and net assets.
The court preferred the evidence of the wife’s expert. The Sheriff found that the discounted cash flow approach involved a high degree of speculation and failed to reflect the current marketability of the company. The Sheriff noted that the business had continued to operate profitably throughout the pandemic and had retained substantial reserves, making the lower valuation unconvincing.
Division of matrimonial property
The total value of the net matrimonial property, including the company shares, pensions, and the former matrimonial home, was calculated at approximately £820,000. The Sheriff determined that a fair division would result in an award of £85,000 to the wife by way of a capital sum. Given the liquidity issues involved in extracting value from the company, the capital sum was ordered to be paid over 18 months in three instalments.
The court made no order for a pension share. The parties’ pensions were broadly similar in value, and the Sheriff concluded that a pension share would not materially improve fairness in this case.
Conclusion
This case illustrates the court’s approach to contested valuations of business interests in financial provision claims and the weight given to competing expert evidence. It highlights the importance of a robust valuation methodology, especially where one party holds a controlling interest in a private company. The case also reflects the court’s willingness to make staged orders for capital sums where liquidity constraints exist, provided a fair sharing of the matrimonial property is achieved.