Business Valuation for Family Lawyers: A Guide to Instructing Experts and Using Valuations in Financial Remedy Proceedings

When a client owns or co-owns a business, the family solicitor faces a valuation question before a financial remedy order can be negotiated or made. Section 25(2)(a) of the Matrimonial Causes Act 1973 requires the court to assess all financial resources, and a privately-held business is a resource the court cannot price without expert evidence. This guide explains how business valuations work in financial remedy proceedings, what drives the number, and what to scrutinise when the expert's report arrives.

Why business valuation matters in financial remedy proceedings

A business interest triggers two distinct questions in any financial remedy case: what is it worth, and how can the value be realised?

On the first question, section 25(2)(a) MCA 1973 requires the court to have regard to "the income, earning capacity, property and other financial resources which each of the parties to the marriage has or is likely to have in the foreseeable future." A business or shareholding is a financial resource within this provision. Form E (Part 2.4 for business interests, Part 2.5 for shareholdings) requires disclosure supported by three years of accounts, any existing valuations and any shareholder agreements. A director's estimate on Form E that later proves materially different from an expert's figure creates credibility problems at an FDR appointment; the solicitor should advise the client against guessing.

On the second question, the clean-break obligation under section 25A MCA 1973 pushes the court to consider whether a capital settlement can replace periodical payments. Where the business is the main asset, the respondent must either transfer other assets of equivalent value, fund a lump sum without selling the business, or negotiate a structured or deferred payment. The illiquidity of privately-held shares is not a theoretical concern: it is central to every business-asset case.

Note that valuing a law firm for sale is a different exercise with its own methodology: see our guide to how to value a UK law firm in 2026. The principles in that guide (goodwill multiples, WIP, debtors and regulatory transfer) apply where the firm itself is the subject of a transaction, not where a client's trading business is being valued for the purposes of a financial remedy order.

The single joint expert: appointment and instructions (FPR Part 25)

The default in financial remedy proceedings is a single joint expert (SJE), appointed on the direction of the court or by consent between the parties. The Family Procedure Rules 2010 Part 25 governs expert evidence in family proceedings (for applications issued on or after 6 April 2022).

Under Rule 25.11(1), where multiple parties wish to put expert evidence before the court on an issue, the court may direct a single joint expert. An SJE is typically a chartered accountant or chartered business valuer. Dual-expert appointments are possible but require court permission; they are reserved for genuinely complex contested proceedings where the SJE model has broken down, and courts are reluctant to permit them because of the cost.

The jointly agreed letter of instruction

Under Rule 25.12(1), instructions to an SJE must be in a jointly agreed letter unless the court directs otherwise. The instruction letter is not privileged; it will ordinarily be disclosed to the court. It should specify:

• The valuation basis required (going-concern value, break-up value, minority basis or controlling-interest basis).
• The date of valuation (usually the date of the SJE's appointment or the date of the instruction, though the court may direct otherwise).
• The documents to be provided (three to five years of statutory accounts, management accounts, budgets, director remuneration schedules, shareholder agreements, articles of association, any existing valuations).
• Specific issues to be addressed (minority shareholding discount, deferred consideration, pension assets within the business, key-person dependency).
• Whether management access is required for interview.
• A deadline for the report, building back from the FDR appointment date.

The expert's duties and written questions

Practice Direction 25B governs the form of the expert's written report and the expert's duties to the court. The SJE's overriding duty is to the court, not to either party, regardless of who pays.

Under Rule 25.10(2), written questions to the SJE may be put once only, within 10 days of the report being served, and only for the purpose of clarifying the report. This is a narrow right: questions that introduce new issues or seek a different methodology are outside scope. The answers become part of the expert's evidence. A party who wishes to challenge the expert's methodology must do so through submissions at the FDR or final hearing, not by requesting a second report.

Both parties are jointly and severally liable for the SJE's fees and expenses. A party who cannot fund their share may seek a costs direction at the First Appointment.

For cases where litigation has already commenced and forensic accounting evidence is required in a broader context, see our guide to instructing forensic accountants in litigation. The SJE framework in financial remedy proceedings is distinct from the CPR Part 35 expert regime in civil litigation, though many of the same practitioners act in both.

Business valuation methodologies

The expert will typically consider more than one method and explain why one is the primary approach and others provide cross-checks or a floor value. The table below summarises the main methods used for SMEs in financial remedy proceedings.

Method	When it fits	Key inputs	Typical SME use
Earnings multiple (EBITDA / maintainable earnings)	Trading businesses with a track record of stable profits	Normalised EBITDA; sector earnings multiple (typically 3x to 8x for SMEs); adjustments for owner's salary above or below market rate	Most common method for owner-managed trading companies
Net assets	Asset-heavy or investment businesses (property companies, holding companies); also as a cross-check or floor value	Independently valued underlying assets (may need a surveyor for property); less intangible-dependent	Property-holding companies; professional practices with minimal goodwill
Discounted cash flow (DCF)	High-growth or project-based businesses where a track-record multiple is unreliable	Projected free cash flows; discount rate (WACC); terminal value	Start-ups, development-stage businesses; Versteegh v Versteegh [2018] EWCA Civ 1050 specifically addressed the fragility of DCF where forecasts are speculative
Dividend yield	Minority shareholdings in established businesses with a consistent dividend history	Historical dividend per share; comparable yield from a quoted peer group	Rarely used for closely-held SMEs; most relevant where the business has a quoted comparator

Earnings-based approach

The earnings multiple is the default for most owner-managed trading SMEs. The expert identifies normalised maintainable earnings: the figure a hypothetical buyer would regard as representative of the business's sustainable profitability. Normalisation adjustments are critical and often contested. They include adding back an owner's remuneration in excess of the market rate for a replacement manager, stripping out one-off costs and income, and reversing related-party transactions at market value. The normalised earnings figure is then multiplied by a sector multiple derived from comparable transactions, adjusted for the specific risk profile of the business (size, customer concentration, management depth, contract tenure and key-person dependency).

The resulting value represents what a willing buyer would pay for the business as a going concern. The key advisory point for the solicitor is that both the normalised earnings figure and the multiple are judgments on which experts can legitimately differ. Small changes to the normalisation adjustments, or a half-turn on the multiple, can move the value materially. The brief at the SJE instruction stage should specify the normalisation issues the instructing parties want addressed.

Versteegh v Versteegh [2018] EWCA Civ 1050 established that even an earnings-based valuation can become unreliable where the underlying assumptions are contested and the business's historical performance does not provide a stable base. Where management projections have proved chronically inaccurate, the court may give reduced weight to a valuation built on those projections.

Net assets approach

Used where the business is asset-heavy, as with property portfolio companies and investment holding vehicles, or where an earnings approach produces an anomalous result (for example, where the business is loss-making but the underlying assets are valuable). The expert values the underlying assets independently and deducts liabilities; a surveyor's report may be needed for property assets.

For a property-holding company, the net asset value and the latent CGT embedded in the underlying properties are both material to the settlement. The gross asset value and the after-tax realisable value diverge where properties carry large unrealised gains: the solicitor must model both figures when negotiating.

Discounted cash flow (DCF)

DCF converts projected future free cash flows into a current capital value using a discount rate that reflects the riskiness of those cash flows. It is the primary method where there is no earnings track record (development-stage businesses, businesses built around a single long-term project) but forward cash flows can be modelled.

The fragility risk is significant. In Versteegh v Versteegh [2018] EWCA Civ 1050, the Court of Appeal confirmed that small timing adjustments can drive large value swings: deferring projected sales by one year in the case reduced one asset's valuation from £45.7m to £33.8m. Where management projections have historically proved inaccurate, a DCF built on those projections becomes unprincipled, and the court may decline to fix a precise value on that basis. The solicitor instructing an SJE on a development-stage business should ensure the instruction letter addresses the expert's assumptions explicitly and requires sensitivity analysis showing the effect of varying the key assumptions.

Dividend yield approach

This method values a minority shareholding by reference to the historical dividend stream and a yield derived from a comparable quoted company or sector. It is rarely the primary method for closely-held SMEs because most owner-managed businesses do not pay consistent dividends (the owner extracts value through salary, director's loan and irregular dividends). Where the business does have a consistent dividend history and a quoted peer group exists, a dividend yield cross-check adds discipline to the earnings-multiple primary valuation.

Minority interests and discounts

Where the matrimonial asset is a minority shareholding (less than 50%, particularly below 25%), the expert will typically consider a minority discount: a deduction reflecting the shareholder's inability to force a sale, declare dividends unilaterally or control strategic decisions. Commercial minority discounts typically range from 20% to 40%, depending on the size of the interest, the company's constitution, drag-along and tag-along provisions, and the realistic exit options available to the minority holder.

Worked illustration

Consider a 25% shareholding in a private trading company with an enterprise value of £2,000,000 on a 100% basis. The husband's pro-rata share would be £500,000.

A commercial buyer of a 25% minority stake, unable to force a sale or declare dividends, would apply a discount reflecting the illiquidity and lack of control. At a 30% discount: £500,000 x (1 - 0.30) = £350,000.

But the court in financial remedy proceedings is not bound to apply a full commercial minority discount. Under the sharing principle established in White v White [2000] UKHL 54, matrimonial assets built up during the marriage should in principle be divided equally, absent good reason to depart from equality. A mechanical deduction on shares the couple built together may be resisted. In Clarke v Clarke [2022] EWHC 2698 (Fam), the court rejected a 20% minority shareholding discount, finding on the facts that the shareholder would likely sell together with the majority shareholders rather than be forced to accept a discounted price on a standalone minority sale. That judgment illustrates that courts apply a facts-and-circumstances test to minority discounts, not a formula.

The practical outcome in contested financial remedy proceedings may be a discount of 10% to 20% rather than the 30% to 40% a commercial buyer would apply, depending on the company's constitution and shareholder dynamics. The expert will produce a range; the solicitor's role is to understand what drives the discount and to challenge an expert who applies a formulaic deduction without considering the specific shareholder arrangements. The shareholders' agreement, articles of association and any drag-along or tag-along provisions should be disclosed with Form E and attached to the letter of instruction.

Liquidity versus value: the implementation gap

A valuation figure does not equate to cash in hand. The headline number tells the court what the business is worth; it does not tell either party how the value can be realised without destroying the business in the process.

The respondent who is ordered to pay a lump sum based on a business valuation has four broad options:

• Fund a lump sum externally. Third-party lending secured on the business or personal assets. This works where the business can service debt without impairing trading, but the availability and cost of external finance depends on the business's balance sheet and profitability.
• Transfer other assets of equivalent value. Where there are other assets (property, pension, investments), the business can be retained by the respondent in exchange for those assets. This requires those other assets to be sufficient in value and realisable.
• A deferred lump sum order. Courts can make an order for payment in tranches over a defined period, giving the business owner time to extract value through the business. The solicitor must model the extraction route (dividends, salary, director's loan repayment) and the tax cost of each route over the payment period.
• Dividend extraction over time. Only a shareholder can extract dividends; the receiving spouse who does not hold shares cannot extract value this way unless shares are transferred to them (see the CGT analysis below).

The solicitor's role is to model whether the settlement number can be realised on a particular timescale and at what tax cost. A settlement that looks balanced on paper can be unworkable if the respondent cannot fund the lump sum without selling the business or if the extraction route is tax-inefficient.

Tax on business assets in financial remedy settlements

CGT: the TCGA 1992 s.58 no-gain/no-loss window (effective 6 April 2023)

Transfers of business assets or shares between spouses or civil partners following separation were significantly improved by TCGA 1992 section 58 as amended by Finance (No. 2) Act 2023 (subsections (1A) to (1D), effective 6 April 2023). The key change extended the no-gain/no-loss window well beyond the end of the tax year of separation:

• Subsections (1A) to (1C): no-gain/no-loss treatment applies to transfers between separated spouses or civil partners until the earlier of the end of the third tax year after the tax year of separation, or the date of the divorce or dissolution order.
• Subsection (1D): transfers made in accordance with a formal divorce agreement or court order qualify for no-gain/no-loss treatment without any time limit.
• In both cases the receiving spouse takes the transferor's base cost: the latent gain travels with the asset, not the liability to pay CGT immediately.

Latent CGT worked example

Shares in a private trading company have a current market value of £800,000. The spouse who owns them acquired them at a base cost (subscription price plus further contributions) of £100,000. The latent gain is £700,000.

Option A: Transfer within the s.58 window (no-gain/no-loss). The shares are transferred to the receiving spouse within three tax years of separation, or under a formal divorce order. Section 58(1A) to (1D) applies: no gain arises on the transfer. The receiving spouse takes the base cost of £100,000. If the receiving spouse later sells the shares for £800,000, the chargeable gain is £700,000.

Tax on that gain (assuming no Business Asset Disposal Relief; standard CGT rates 2026/27):

• Annual exempt amount: £3,000.
• Chargeable gain: £697,000.
• CGT at 18% (within the basic-rate band) and 24% above: the split depends on the receiving spouse's other income. In a worst case (all above the basic-rate band): £697,000 x 24% = £167,280 CGT payable on a later sale.

Option B: Transfer outside the s.58 window (or after a formal-order route is not used). The transfer is treated as a disposal at market value (£800,000) by the transferring spouse. CGT is immediately in point on the latent gain of £700,000:

• Chargeable gain: £697,000 (after the annual exempt amount of £3,000).
• CGT (worst case, no BADR): £697,000 x 24% = £167,280 CGT due on the settlement itself, before the receiving spouse has received anything. The amount coincides with the future liability in Option A only because the gain is the same; the difference is timing and whose liability it is: under Option B the transferring spouse pays now, under Option A the cost is deferred to the receiving spouse’s later disposal.

The advisory point is that the headline settlement value of £800,000 and the net-of-tax value diverge materially. Where the divorce order can be timed to fall within the s.58 window, the latent CGT is deferred to the receiving spouse's future disposal rather than crystallising on the settlement. But the receiving spouse should understand that the asset carries an embedded future tax liability: the net receipt on an immediate sale at current value would be approximately £632,720, not £800,000.

Business Asset Disposal Relief (BADR) is unlikely to be available to a receiving spouse on a later disposal unless they also work in the business and independently satisfy the qualifying conditions: at least 5% of ordinary shares, at least 5% of voting rights, officer or employee status, and a two-year holding. Do not assume BADR applies. The current BADR rate is 18% from 6 April 2026 (having risen from 14% on 6 April 2025 and 10% before that); at 18%, BADR provides only a modest saving over the standard 18% basic-rate band anyway.

Income tax on extracting value

Where the settlement involves the respondent extracting value from the business to fund a lump sum, the tax cost depends on the extraction route:

• Dividends: income tax at dividend rates (10.75% ordinary / 35.75% upper / 39.35% additional from 6 April 2026, with a £500 dividend allowance). Only a shareholder can receive dividends; the receiving spouse must hold shares to extract value this way directly.
• Salary from the business: subject to PAYE income tax and employer Class 1 NIC at 15% on earnings above the £5,000 secondary threshold from 6 April 2025. Salary is more tax-efficient at lower amounts (it uses the personal allowance) but significantly less efficient at the rates required to fund a large lump sum.

Preparing the client for Form E disclosure

Form E requires disclosure of business interests (Part 2.4) and shareholdings (Part 2.5), supported by three years of statutory accounts, any existing valuations and any shareholders' agreements. The failure mode that creates most problems at an FDR is a director's estimate on Form E that proves materially inconsistent with an SJE's report. The court and the other side will draw adverse inferences from unexplained inconsistencies.

The solicitor's pre-Form E advice should cover:

• The obligation to disclose all business interests, including minority shareholdings and interests held through corporate structures.
• The duty to disclose existing valuations, even where the figure in them is unfavourable.
• The importance of disclosing shareholder agreements, drag-along and pre-emption provisions, as these directly affect the minority discount analysis.
• The privilege position: the jointly agreed instruction letter to the SJE is not privileged. A party's own expert report, if permitted, may retain privilege unless it is relied upon; but courts will generally require disclosure of any expert evidence before it can be used at a hearing.

On related-party transactions, the solicitor should probe whether the business's declared accounts reflect the true economic position. Owner-managed businesses often carry related-party payments (family salaries, connected-party rents, director's loan movements) that the SJE will adjust in the normalisation exercise. Understanding those adjustments before the report arrives allows the solicitor to anticipate the figure and advise the client more accurately.

What to scrutinise when the expert's report arrives

When the SJE's report is served, the fee earner should read it with a focus on the following points before advising the client or formulating questions under Rule 25.10(2):

Normalisation adjustments. Does the expert's normalised earnings figure reflect the economic reality of the business? Are owner-remuneration adjustments based on genuine market comparators, or on an assumed market rate that may be too high or too low for the role?

The multiple. What sector and comparable-transaction evidence supports the multiple applied? Is the multiple discounted for size, customer concentration or key-person risk? Is the discount proportionate to the actual risks identified?

Minority discount. Has the expert considered the specific shareholder agreement, the realistic likelihood of a co-ordinated sale, and the court's approach to matrimonial-asset discounts, or has a formulaic percentage been applied?

The valuation range. Does the report set out a credible range, or does it express false precision? Versteegh v Versteegh [2018] EWCA Civ 1050 confirms that the court may resist a precise figure where the underlying assumptions are genuinely speculative.

Latent CGT. Has the expert noted the base cost and the latent CGT position? Many business-valuation reports note the gross value but do not address the tax consequences of a share transfer. The solicitor must model those consequences independently.

The 10-day window for written questions is tight. Prepare the questions in advance, with the client, as soon as the report is received. Questions must be for clarification only: they cannot seek a revised methodology or a different answer. If the expert's methodology appears fundamentally flawed, the appropriate route is submissions on weight at the FDR, not further questions.

From valuation to settlement: the adviser's job

A business valuation in financial remedy proceedings requires accounting expertise alongside legal process management. The solicitor's role is to instruct the right expert for the type of business, ensure the letter of instruction captures all the relevant issues, scrutinise the methodology when the report arrives, translate the valuation range into settlement options and model the tax consequences of each option. The headline value and the net-of-tax, net-of-liquidity value are rarely the same figure.

For guidance on goodwill in a law firm sale context, including how goodwill is treated on a partner's disposal for CGT purposes and how a buyer can claim relief on acquired goodwill, see our guide to law firm goodwill valuation.