The Importance Of Future Proofing Valuations

Recent case law has given the green light for financial settlements in divorce proceedings to be re-opened following non-disclosure.

There will be concern that many spouses may seek to reopen settlements on the basis of a perceived lack of disclosure or deliberate misstatement.

With the possibility of private company valuations being reviewed on a reopening of a case, it is important that high quality evidence of how the figure was arrived at is there for future eyes to see.

Reassessing company valuations in divorce proceedings

Private company shareholdings often form a material element of the total matrimonial assets and the value attributed to these assets makes them prime targets for re-examination with the benefit of hindsight.

The nature of a valuation of a private company is dependent upon both the current and predicted performance of the company at any one time. Unless the business is sold, the value is generally established by an expert using their judgement and experience and this can bring an element of subjectivity into the valuation.

The value of a company can differ materially in the period subsequent to the valuation date. In the context of a financial settlement within matrimonial proceedings, it is often tempting to assume that any increase in share value post-divorce was due to inappropriate value attributed to the assets during proceedings.

Prior to reopening matters amidst accusations of deliberate misstatement in relation to the value of a company, there are some simple, cost-effective steps that should be taken by the legal adviser.

It is important that valuations are undertaken appropriately which will include basing any conclusion on a weight of evidence rather than opinion which will include an in- depth review of the financial performance of the business in question, the performance of competitors and predictions associated with the markets in which the business is operating.

Whether the assumptions were correct with the benefit or hindsight has no bearing on whether it was appropriate to make them at the time, providing that the evidence at the date of valuation indicated that this was the case. As long as this is the conclusion then there can be no claim for lack of disclosure or deliberate misstatement.

In order to conclude, the recent rulings that have established a precedent for reopening settlements means that it is now more important than ever for practitioners to ensure that share valuations cannot be challenged with the benefit of hindsight, when values may have potentially increased dramatically. A robust, evidence-based valuation process should ensure that any challenge cannot succeed.