How do you value company shares to reach a financial settlement? Our Manchester divorce solicitors have to answer this question when looking at divorce and the family business and negotiating financial settlements.
If a husband and wife cannot agree on the value of company shares, the husband or wife can start financial court proceedings. In the financial court case, a judge can order the valuation of shares by an independent forensic accountant. Ultimately, it is for the family judge to decide on what is a fair value of any company shares and to make a financial court order.
A fair financial settlement
The family court objective is to reach a fair financial settlement.
What amounts to a ‘’fair financial settlement’’ is subjective. A husband’s opinion on a fair financial settlement may vary wildly to that of his estranged wife.
When deciding how to split family assets the court applies statutory factors, such as the length of the marriage and the husband and wife’s ages, to reach what the court considers a fair result.
Although the court looks at statutory criteria when making a financial court order, the judge can exercise discretion. That discretion partially explains the number of appeals against financial court orders. The other reason spouses are often disgruntled with a financial court order is that they do not perceive the financial settlement to be fair as fairness is ‘’in the eye of the holder’’.
Valuing company shares to get a fair financial settlement
The fairness of the financial settlement depends on assets, such as property or company shares, being valued correctly.
To add to the complexity of valuing company shares, frequently our divorce solicitors need to ask experts to value the company shares at different dates.
For example, a forensic accountant may be asked to value company shares at:
- The date of separation; and
- The date of cohabitation or marriage; and
- The date the company shares were transferred of gifted to a husband or wife.
The Martin case and valuing company shares
The Martin case shows just how complicated it can be to value shares in a non-listed company.
Last year a judge had to decide how to split the Martin family fortune of roughly 182 million. Mr Justice Mostyn decided Mrs Martin should get about £73 million of the family assets. That is about forty percent of the family assets.
After a long marriage, Manchester divorce solicitors start from the premise that family assets should be divided equally on divorce. Equality can be departed from if there are good reasons to do so.
Mrs Martin therefore thought that the financial court order was unfair and that she should get more. Mr Martin was also of the view that the financial settlement was unfair.
Accordingly, Mrs Martin appealed to the court of appeal and Mr Martin cross-appealed.
The facts of the Martin case
Mr and Mrs Martin had been married for 29 years and had two adult children. This was a long marriage.
At the time of their marriage, Mr Martin owned shares in the family company and Mrs Martin was a shop floor employee. There were no prenuptial agreements in place. If there had been a prenuptial agreement this could have potentially avoided the contested court proceedings or narrowed the issues.
Valuing a company in divorce and financial settlement proceedings
The appeal centred on the valuation of the shares in the company, Dextra Group PLC, at the time that Mr and Mrs Martin began to cohabit.
At the time the couple began to live together the company was not listed. An expert was instructed to prepare a report on the value of the shares.
Mrs Martin valued the shares at 1.6 million at the date of cohabitation. The judge decided the shares were worth 44 million.
The valuation of the company shares at the date of cohabitation was key to deciding if Mrs Martin’s 73 million was a fair financial settlement. That is because Mr Martin said the value of the company shares he owned at the date of cohabitation should be ‘’ring-fenced’’ and not shared with Mrs Martin.
The Martin court of appeal decision
The court of appeal decided to refuse Mrs Martin’s request for more than 73 million of assets.
The court of appeal concluded that the first judge had reached a fair decision. Their view was that a judge is entitled to take a view on the value of the assets and wealth that a husband or wife brings into a marriage.
In other words, the court of appeal rejected the idea that judges should just focus on the accountant’s figure for the value of the company shares at the time of cohabitation.
The court said that a financial settlement ‘’ involves a holistic, necessarily retrospective, appraisal of all the facts and then the application of a subjective conception of fairness, overlaid by a legal analysis.’’
The court of appeal has reconfirmed to divorce solicitors that the financial settlement fairness test is subjective.
That subjective approach makes it all the more important for spouses to take early specialist legal advice from divorce solicitors who are experienced in divorces involving family businesses and in assessing what a court is likely to determine as a fair financial settlement .
How can Evolve Family Law Solicitors help?
For expert legal assistance with divorce and financial settlements, contact us.