A private company valuation arrives in a family law case looking like arithmetic: maintainable earnings multiplied by a factor, adjusted for surplus assets and debt. Every element of that arithmetic is in fact a judgment call, and the gap between two honest valuations of the same company can exceed the value of every other asset in the case combined.
Maintainable earnings
The starting figure is not the profit in the accounts but the profit the business can sustainably generate, adjusted for one-off items, for a market rate of remuneration for the working directors, and for any expenses that are really personal. Each adjustment is contestable. Add back too little owner remuneration and earnings inflate; classify recurring costs as exceptional and the same happens. The forensic accountant's working papers matter more than the headline number.
The multiple and the discounts
The multiple applied reflects sector, scale, customer concentration and growth, and small private companies attract far lower multiples than the listed comparators sometimes cited. Minority shareholdings then attract discounts for lack of control and marketability, which can be substantial, and whether a discount is appropriate at all in a family context, where no actual minority sale is contemplated, is itself argued. These layers are where cross-examination lives.
Value is not liquidity
Even a robust valuation answers only half the question, because a spouse cannot be paid in valuation reports. How value is extracted, distributions over time, borrowing against the company, sale of non-core assets, determines what provision is actually workable, and the tax consequences of any extraction are a matter for specialist tax advice. The strongest cases marry a defensible valuation to a funded proposal.
This article is general information, not legal advice. For the full practice area, see Business and Company Interests in Divorce, or contact the practice to discuss a matter in confidence.