A Legacy Intact: safeguarding your family business in the event of divorce - Book - Page 40
If it is not possible to agree a
“
valuation, the Family Court will
usually
appoint
a
single
joint
WHEN IT COMES TO
A DIVORCE
S E T T L E M E N T,
SHAREHOLDERS IN
A FA M I LY B U S I N E S S
D O N’T A LWAYS
REALISE TH AT THE
COURT WILL TAKE A
VIEW ON THE EXTENT
TO WHICH THEY HAVE
P E R S O N A L LY
CONTRIBUTED TO ANY
INCREASE IN THE
VALUE OF TH AT ASSE T
DURING THE COURSE
OF A MARRIAGE. THERE
ARE NO RIGHTS OR
WRONGS HERE – BUT
IT’S WORTH
BEING CLEAR TH AT THE
COURT WILL WANT
TO UNDERSTAND THE
ROLE YOU
HAVE PLAYED
expert (“SJE”) to report on not only
valuation but also liquidity and
the ability to extract funds via any
shareholding, or by any borrowing
against such shares in order to meet
the departing spouse’s claim(s).
This includes whether there is any
surplus cash and how much could
be extracted by way of dividends.
The Court will also be mindful of
The role of the individual shareholder
the fact that it is not considered
can be relevant to the value applied
appropriate to treat shares in a
to their share in the company. The
business and a cash lump sum as like
Family Court will look at when the
for like - one is seen as an illiquid and
shareholding was acquired and its
potentially risky asset whereas the
then value compared with, if later, its
other is often described as ‘copper-
value at the time of the marriage and
bottomed’. This is a factor when
then once again at the time of the
determining the distribution of wealth
breakdown of the marriage.
between spouses as the Court must
balance risk.
The
significance
of
this
is
the
exploration of legal concepts known
The SJE report may also include
as
an opinion on the dividend policy
“springboard”. If the shareholder has
and the entitlements the particular
not contributed to the increase in
shareholder derives (or any other
value during the relevant period by
officer or employee) such as salary,
working for or being actively involved
bonus entitlement and benefits. The
in the management of the business,
valuation exercise of the shares of the
the Family Court is likely to attach
individual shareholder will be informed
much less importance to this than
by a number of factors such as their
where the shareholder has been
marketability, discounts for the size
heavily involved in the business and by
of shareholding and availability of
his or her own efforts has generated
event and/or to establish the level
purchasers. It is by no means certain
value in the business. The Court will
of income that could be drawn
that an SJE valuation would be a
consider whether the shareholding
from the business in the future to
pre-requisite but it is best to assume
provided the ‘springboard’ to create far
meet spousal maintenance, child
it will be required in the event that a
greater wealth than would otherwise
maintenance and/or school fees.
shareholder gets divorced.
have been the case if the shareholder
The expert appointed to value the
business will consider whether there
have been any previous transfers
of shares and the value adopted
for that transfer. The report ought
to enable the Court to ascertain
whether a series of payments over
a period of years can be made
KATIE O’CALLAGHAN
FA M I LY P A R T N E R
either from accruals of likely future
profit or from a future capital
”
“passive
growth”
as
against
had done nothing during the marriage
other than enjoy the income stream.
40
