Valuation of Matrimonial Assets
– for Divorce Proceedings
Question: I am about to get divorced from my wife and the divorce may be contested if we are unable to agree on the division of our assets. I need to get a valuation of the business that we have built together. Is that possible?
Answer: Yes, but you need to first ensure that the business to be valued is a qualified matrimonial asset. Only matrimonial assets can be distributed.
Matrimonial assets are defined in the Women’s Charter (Cap 353) as:
(a) any asset acquired before the marriage by one party or both parties to the marriage —
- ordinarily used or enjoyed by both parties or one or more of their children while the parties are residing together for shelter or transportation or for household, education, recreational, social, or aesthetic purposes; or
- which has been substantially improved during the marriage by the other party or by both parties to the marriage; and
(b) any other asset of any nature acquired during the marriage by one party or both parties to the marriage but does not include any asset (not being a matrimonial home) that has been acquired by one party at any time by gift or inheritance and that has not been substantially improved during the marriage by the other party or by both parties to the marriage.
Question: What is the process, how much does it cost, and what documents are required to value a Private Limited Company as a matrimonial asset?
Answer: It depends if the valuation is required under the Court’s order, or if it is on your own initiative.
| Under Court’s Order | On Own Initiative | |
| Valuer’s Responsibility | To the Court | To the appointer |
| Advantage | Both parties will decide on a common and independent valuer | You may appoint the valuer and do the valuation as early as possible. |
| Disadvantage | You will need to wait for the Court’s judgment. | Your spouse can contest the report, by challenging the assumption used in the valuation report since the valuer may not have obtained the full information from both parties. The valuation process may thus be delayed and be more costly. |
| Fees | Starting from $5,000 per company (subject to the complexity of the company) | Starting from $5,000 per company (subject to the complexity of the company). There is an additional $800-$1,000 per query letter from the Court. |
| Documents required: |
· Past 3 years audited/unaudited financial statements and detailed schedules · Material contracts or agreements · Forecast/budget account of the Company · List down the key competitors of the Company |
|
Question: Can we just do a desktop valuation to keep the cost low?
Answer: While we can do a desktop valuation as per your request, we do not encourage it, especially if it is not under the Court’s order. If your spouse challenges the desktop valuation, you will then have to produce a full valuation report. It is akin to doing double the work and hence not cost-effective. So, we normally recommend our client to do a full valuation instead.
Question: Which business valuation method(s) will be used or accepted, based on industry standards?
Answer: Generally, there are 3 accepted approaches for business valuation:
- Income Approach – based on the future capabilities of the company to generate income. This approach will involve the assumptions made by the management/shareholder of the business. So, we need to obtain this information from you.
- Asset Approach – based on the balance sheet of a company, book value of the individual assets and deducts the liabilities. As such, the company is viewed as a set of assets and liabilities.
- Market Approach – based on the comparable business in the market (i.e., the listed company or recently transacted company). The challenge is whether there is reliable financial data in the market.
Our primary approach will normally be the Income Approach, unless there is a specific reason to use other approaches. We will use either the Cost or Market approach as a cross-check to the primary approach.
Do you need more information on Matrimonial Assets Valuation? Get in touch with our business valuation team now.