Article by Laurence Stanton

Ending a relationship in itself is a difficult and often stressful experience for many people.  Unfortunately, when the time comes for a separating couple to decide how to divide their assets and negotiate the division, it can feel like an overwhelming challenge.   As well as the emotional issues surrounding how to negotiate the split, there are many other practical considerations that need to be discussed in regard to how the assets are divided.  One of these considerations is to decide how to value different items of property and whether some items need to be valued professionally.  This is important to ensure that both parties are negotiating a division of their assets by adopting an informed and real value of each asset. 

There is no one rule governing how to value property for Family Law purposes, as different types of property require different valuation approaches.  For some classes of assets there are clear understandings as to the appropriate method to be adopted.  However, no matter what method is used - market value, auction value, replacement value or insurance value - the objective is usually the same: to assign a dollar value to each item of property.  This is often where some difficulties arise. 

The usual commercial methods of 'market value' or 'hypothetical purchaser' assume that the ultimate benefit of the asset is derived from the proceeds of its sale and that those benefits will pass to a prospective buyer when sold. This is not always the case.  For that reason the concept of 'value to the owner' has become important to separating couples when valuing assets such as minority shareholdings in family owned companies.  In many family owned companies the shares held give the shareholder additional benefits that are based on the owner's specific attributes or give advantages to the owner which may not pass on to a third party purchaser.  These advantages often do not increase the market value of the shares.  A common example is where a minority interest is held by a spouse in a family company.  The spouse's parents are the majority shareholders and the spouse stands to inherit the majority of the shares in the future.  In this case it can be argued that as the company is owned by the parents of the spouse, the full benefit of the shares can not be sold or passed on to a third party, as those benefits are attached to the particular shareholder spouse.  The valuation of these shares at 'market value' does not reflect their potential or 'real' value to the spouse who holds them. 

For this reason, valuation methods developed for commercial purposes are not always appropriate or helpful for separating couples who need to know the asset's value in terms of what it means to them individually.  When considering the value to be placed on minority shareholdings, the Family Court has made some relevant comments. It has said that it is not appropriate to value shares on what a hypothetical purchaser may pay for them as this is not realistic and is only applicable where there is an available market. 

Similarly, the present commercial capital value of shares in a company may not reflect the value to the spouse who will maintain control after a property settlement or who ultimately stands to benefit from the shares in the future. 

When faced with a situation such as this, a judge must look at the reality of the situation in each case and the value of the shares on the basis of their worth to the shareholder.  This approach looks more realistically at each of the parties' positions and gives a value to the shares based on the worth of the shares to the individual spouse.  This is a valuable approach for separating couples to have when discussing a property settlement. 

Practitioners have received some further guidance in relation to this concept from Family Court judges who have commented that experts who are valuing minority shareholdings should avoid reaching conclusions or speculating on future events that are better left for the Court to decide.  This includes whether shares are likely to be sold by the spouse in the future, or the likelihood of a spouse gaining a majority shareholding in the future. 

The 'value to the owner' concept provides an important distinction in Family Law and to separating couples where the ownership of a business and the associated benefits are likely to continue for one party after the separation. The concept is not exclusive of other commonly used valuation methods, they are often used collectively to ascertain the most appropriate means of valuing property.  There are no clear cut rules about how to approach this issue but it can have a very real effect on the outcome of a property settlement.  It is important to obtain a valuation in a way that addresses both parties concerns about that item of property.  This can be crucial to obtaining an agreement at the end of the day which addresses each of the separating couple's respective goals and concerns, ensuring a financial settlement which recognizes the true value of the assets of their relationship.