Business Valuation in Divorce Settlements

Zane Castle
Sep 25
5 min read

Business valuation in divorce settlements is the process of determining the fair market value of a business or business interest for the purposes of dividing property between separating spouses.

This ensures each party receives a just and equitable share, particularly when the business is a significant marital asset.

In Australia, business interests are considered property under the Family Law Act 1975, and must be disclosed, valued, and accounted for during property settlement proceedings.

Whether it’s a small family-run operation or a large company, understanding how business assets are appraised and divided is critical for a fair outcome.

Business Valuation in Divorce: The Basics

When a couple separates, one of the most complex aspects of the property settlement process can be the valuation and division of a business.

The business may be jointly owned, solely owned by one spouse, or part of a more complex structure involving trusts, partnerships, or companies.

Regardless of the structure, the family law courts require a full and frank disclosure of financial information, including business assets and liabilities.

The primary goal of business valuation in divorce is to establish the net value of the business interest—that is, what the business is worth after liabilities are deducted—so that it can be included in the pool of assets to be divided.

In Australian family law, all assets, liabilities, and financial resources are considered when dividing property following the breakdown of a marriage or de facto relationship. If a business is one of the more valuable assets, its accurate valuation becomes crucial.

Common issues that arise include:

Hidden income or undervaluation: One party may try to minimise the business's value or income to avoid sharing it.
Complex structures: Businesses may involve companies, trusts, and third parties.
Intangible assets: Goodwill, client lists, and intellectual property can be hard to value but must be included.
Future earning capacity: The business may provide ongoing income, which also plays a role in the overall settlement.

Family law solicitors often work with forensic accountants and business valuers to ensure the process is thorough, transparent, and legally sound.

When Is a Business Valuation Required?

A business valuation is typically required if:

One or both spouses own a business interest.
The value of the business is in dispute.
The business makes up a significant part of the asset pool.
One spouse intends to retain the business post-separation.

In some cases, the parties may agree on a value without formal valuation. However, this carries risk, particularly if the value is significantly underestimated. The court will often give more weight to independent, expert valuation reports than to informal or unverified valuations.

Who Conducts the Valuation?

A qualified forensic accountant or business valuer is typically appointed to conduct the valuation. In family law matters, this person is usually engaged as a single expert witness—an independent party whose duty is to the court, not to either party.

The current business information is used to prepare a valuation report, which becomes an important piece of evidence in the settlement process.

Methods of Business Valuation

There are several approaches to valuing a business, and the chosen method will depend on the nature of the business, its size, and financial performance. Common methods include:

1. Capitalisation of Future Maintainable Earnings (FME)

This method is used for businesses with stable income streams. The valuer assesses the average annual earnings and applies a capitalisation rate based on risk and industry benchmarks. This gives an estimated present value.

2. Market-Based Valuation

The business is compared with similar businesses recently sold in the market. This is more useful for small businesses or franchises where comparable sales data is available.

3. Net Asset Valuation

Used for businesses with significant tangible assets, this method values assets (like property, vehicles, inventory) and subtracts liabilities to determine net value.

4. Discounted Cash Flow (DCF)

More complex, this method forecasts future cash flows and discounts them to a present value using a discount rate. It's typically used for larger businesses or those with volatile earnings.

Each method has strengths and weaknesses, and a professional valuer may use more than one to cross-check results.

Business Ownership Structures and Family Law

Businesses are often structured in complex ways to maximise tax efficiency or protect assets. Common structures include sole traders, partnerships, companies and trusts. These structures can significantly affect how the business is valued and divided. For example:

Trusts: The court may treat trust assets as part of the property pool if one party has effective control or a beneficial interest.
Companies: Even if the business is a company, the court can look through the structure to determine who truly controls and benefits from it.

Ultimately, the substance over form principle applies—the court is more interested in the real control and benefit derived from the business than in legal labels.

How Is the Business Divided?

Once the value is determined, the next question is how the business interest is to be divided. Options include:

One party retains the business and pays the other a settlement sum (offsetting other assets like property or superannuation)
Selling the business and dividing the proceeds
Structuring a payout over time if funds are not immediately available

The court aims for a just and equitable division. This does not necessarily mean equal, but it must be fair in the circumstances, taking into account factors such as:

Financial and non-financial contributions of each party
Length of the relationship
Future needs and earning capacity
Parenting responsibilities

The court typically avoids forcing the sale of a viable business unless no other fair option exists.

Valuation Challenges and Disputes

Business valuation can be contentious, particularly where financial disclosures are disputed or income is suspected to be hidden. Fluctuating business values and ties between future income and the business also complicate matters.

If parties cannot agree on a single expert, the court may allow each party to appoint their own valuers. This can increase costs and complexity, but sometimes it’s necessary.

To avoid disputes and ensure transparency, parties should provide full and frank financial disclosure, engage early with experienced family lawyers and accountants and consider mediation or negotiation to resolve disagreements.

Tax Considerations in Business Division

There are significant tax implications when dividing business assets, including Capital gains tax (CGT), GST, Stamp duty (in some cases) and tax on sale of business assets. Fortunately, the Family Law Act allows for CGT rollover relief in certain circumstances.

This means capital gains tax can be deferred when assets are transferred as part of a family law settlement. Legal and tax advice is essential to ensure these issues are properly managed.

Protecting the Business Post-Separation

If one party continues operating the business, they should update registrations, licences, and ownership records, remove the former partner from financial and legal links, and protect intellectual property and customer data. Renegotiating partnership or shareholder agreements may also be necessary to ensure smooth operations.

Need Advice on Business Valuation in Your Divorce?

Business valuation in divorce settlements is a highly specialised and essential process that ensures a fair division of one of the most significant assets a couple may share.

Whether the business is jointly run or solely owned, accurate valuation and legal guidance are crucial to achieving a just and equitable outcome.

At Drakos & Company Solicitors, our experienced family lawyers in Brisbane work with forensic accountants and business valuers to provide clear, strategic advice on how business interests should be valued and divided during separation.

We protect your rights, preserve business continuity, and ensure your financial future is secure.