In such turbulent times as these, with the physical, emotional and financial impact of the Covid-19 pandemic, there are a number of uncertainties as to family finances and valuation of assets.
You may question as to how assets can be valued at all given the uncertainty surrounding the housing market and fluctuations in the stock market. Equally, if you own a family business you may question what value your business has at this moment in time.
As Family Law Solicitors we will advise that if parties are unable to agree on the value of the family business then there should be a joint instruction of an expert accountant to prepare a Valuation Report.
There are a number of unknown, even now some 3 months after we went into lockdown, and these unknowns include the following: –
- It is unknown for how long the present Government imposed restrictions will continue or as to what form they may take in the future;
- It is unknown as to when businesses in different sectors will be able to recommence trading under normal conditions and;
- It is not possible to determine how long it would take to get back to pre-pandemic levels of trading (if ever).
The expert accountant valuer guidance presently has been that they would expect to consider both net asset and earnings-based values for any family business although it is not possible yet to determine what extent the pandemic will have upon the asset base of businesses.
Additionally, with regard to earnings for the business, it has been clarified that an earnings-based valuation is of future maintainable earnings and not current earnings although the multiple, to which earnings are applied to arrive at a value, could well be affected by the pandemic.
All valuers will tell you that valuing a family business is more of an art then a science and that valuations can fluctuate.
The guidance from accountant valuers is simply that they should not be expected to go crystal ball gazing and trying to second guess what the effect of the pandemic may be but that they will undertake valuations of family businesses based upon information (financial and multiples) currently available and to draw attention to the current situation and the effect that the Coronavirus outbreak could have on such values.
Whilst there are clearly many uncertainties and challenges ahead of us, as specialist family lawyers we will be able to guide you upon the following: –
- The timing of obtaining valuations of family businesses and if historical valuations should be updated;
- Whether it is best to share risk by dividing each type of asset rather than, for example, one of you keeping all the cash savings and equity in the family home with the other retaining an interest in the family business.
In these difficult financial times, it is more important than ever to seek guidance on factors such as whether any cash can be extracted from a family business to fund a divorce while allowing a generous “buffer” to remain in the business for the current economic uncertainties.
We should all expect expert accountant valuers to be more cautious when providing their view on a level of cash that may be considered “surplus” within the business and liquidity within the family business is going to be a considered a significant concern for most businesses in the foreseeable future and therefore a prospect of staged payments is likely to become common place in divorce settlements.
Some parties may have an interest in pushing through a financial settlement at a time when business assets are at a “low” (and this may be acceptable to both parties if there is a risk that the business will not survive). Others will simply not have the capacity to proceed as they focus their attention upon the short-term survival of the business. However, there needs to be an acknowledgment that the pandemic will affect every business in a different way and that, whilst all businesses are being affected in the short-term, some will flourish and grow as a result.
As Family Solicitors we can provide guidance as to whether there is a need for a valuation of the family business during these extremely challenging circumstances and the timing for such a valuation. Such a report can assist parties by informing them with the detail that they require to reach a negotiated amicable settlement.
To speak with one of our family law experts, contact us today.
T: 029 2034 2233
Author: David James