Valuing the private company
Private company shares have no market price. Valuation is expert territory: multiples of maintainable earnings for trading companies, net asset approaches for property and investment companies, discounts for minority holdings and lack of marketability. The inputs are contestable at every step, from the adjustments to reported earnings for directors' remuneration to the choice of multiple. A forensic accountant instructed early, with full access to the books, changes the shape of the case.
The director spouse and disclosure
Company owners control the information. Filed abridged accounts reveal little; management accounts, directors' loan accounts, related-party transactions and the pattern of dividends and remuneration reveal a great deal. Discovery in these cases must be drafted to reach the company records that matter, and the court can draw inferences against a spouse whose disclosure is incomplete or contrived. Depressed earnings in the years before a hearing, deferred contracts and newly discovered liabilities are patterns the courts have seen before.
Income versus capital
A company is both an asset and an income stream, and it cannot be counted twice. If provision is structured as ongoing maintenance funded by the company's earnings, that bears on how much of the capital value should also transfer, and vice versa. The interplay between lump sums, share transfers and periodical payments is where these settlements are engineered.
Protecting the trading entity
Orders that force a sale of shares in a small trading company, or that leave separated spouses locked together as shareholders, tend to destroy value for both. Alternatives used in practice include lump sums funded by company distributions over time, transfers of non-trading assets out of the structure, and pension provision. Where there are outside shareholders, pre-emption rights and shareholder agreements constrain what the court can practically do, and they need to be put in evidence. Any restructuring undertaken in the course of a settlement has tax consequences on which specialist tax advice should be obtained.
Frequently asked questions
Will my spouse get shares in my company?
A property adjustment order can in principle transfer shares, but courts are conscious of the difficulties of leaving separated spouses in business together and often prefer provision by lump sum or other assets where the evidence supports it.
Do company accounts have to be disclosed?
Yes. A spouse's Affidavit of Means must vouch their interests, and discovery routinely extends to management accounts and company records where a shareholding is a significant asset.
To discuss a matter in confidence, contact Richard O'Shea at Mary Molloy Solicitors, 2 Rose Inn Street, Kilkenny. Arrange a consultation. This page is general information, not legal advice.
Further reading on this topic
- Valuing a Private Company in Divorce: What the Multiple Hides
- The Director Spouse and Disclosure: Reading Between the Filed Accounts
- Shareholdings and Share Transfers on Separation: Pre-Emption, Consents and Reality