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UK court rules on courts’ approach to valuing company shares in marital disputes

Out-Law News | 09 Jan 2019 | 11:07 am | 1 min. read

A Court of Appeal ruling sets out the approach a court should take to the valuation of shares in a private company when determining how to divide marital wealth.

The judgment will help courts determine what part of the current wealth of parties to a marital dispute is non-marital, if their wealth includes shares in a private company which was founded by one of the spouses before they married or started living together. 

The ruling backs that of an earlier High Court ruling by Mr Justice Mostyn that the valuation of a company founded by Rupert Martin before his relationship with his wife Janie should be taken as equivalent to cash.

The judge also applied a straight-line apportionment of the value of the company from the date when the business was first incorporated to the date of the hearing, rather than from the start of the Martins' relationship, deciding that 80% of the company’s value was marital property.

Family law expert Sarah Ingram of Pinsent Masons, the law firm behind Out-Law.com, said the courts have taken differing approaches to the valuation of a family business founded before a relationship starts. Ingram said some judges, including CoA judge Lord Justice Moylan, have followed a "broad brush approach" to company valuations, while others including Mostyn have followed a more formulaic path.

"We have seen a more formulaic approach being used in recent years, particularly following the case of Jones v Jones in 2012, but there is still no set formula or approach to how the courts should approach this issue," Ingram said.

"This case is a reminder of the principles, with the addition of Mostyn's new straight-line approach. Family businesses in particular are a difficult asset to value and to liquidate without 'killing the goose that lays the golden egg'," Ingram said.

The Court of Appeal decided that the High Court was entitled to adopt the straight line apportionment approach to determine how much of the company should be characterised as marital property, saying section 25 of the Matrimonial Causes Act provided discretion for him to do so.

Ingram said: "However, this has simply added another option to the possible approaches that family judges can take when dealing with the value of a family business, and so it has not provided the much anticipated clarity that was hoped for by many divorcing couples, which was particularly surprising following Moylan's comments in the Hart v Hart judgment last year."