Obtain Valuations to Achieve a Fair Settlement

  • 10 Feb 2022

It is rare (although not unheard of) that divorce cases start with a court action. More often than not, where finances are involved, there is a lengthy email type negotiation, perhaps followed by a few face-to-face ( or Zoom) meetings. Only if a deal cannot be agreed does a court action follow.

In many higher value financial divorce cases one party has been involved in creating the wealth and managing the finances and the other has not. (Or it could be that one party has a massive Pension and the other does not.)

Obviously this type of scenario is not always the case, but cases where there is this kind of imbalance are frequently contentious.

From a legal perspective it is well established that unless there are exceptional circumstances the matrimonial assets acquired by a couple during the course of their marriage are, on separation, shared fairly. Fair sharing is very often equal sharing.

Often the wealth creator does not see it that way.  How can it be fair that the assets he or she has been responsible for accruing should be split equally? With that backdrop the negotiation begins.

In this type of case an offer will often be made early in the negotiation before any valuations have been obtained. The person making the offer, the self-styled wealth creator, will take the view that he or she can control matters by making an offer that will be acceptable to the other party but will in no shape or form amount to a figure that represents the value of half the matrimonial assets.

Apparently the thinking  is that the party who has not been responsible for building the business or running the finances will feel deeply insecure and be concerned that they will end up with little or nothing and therefore the superficially attractive offer should maybe be accepted ensuring an element of security and minimisation of legal fees.

It is in this type of situation that a family lawyer has to take a strong line with the client to avoid the client accepting what might, on the face of it,  seem an attractive offer, but which is an offer that is far less than the client is entitled to.

The family lawyer should say to the client that before the offer is either accepted or refused more investigation requires to take place. In particular, before the lawyer can provide any advice on what a fair settlement might be, professional valuations of all the significant matrimonial assets should  be obtained.

How can it  be possible to establish what half the value of the matrimonial property is in a situation where there is no information as to the value of the whole matrimonial property?

The family lawyer should say two things to the client;

  1. It is not possible for me to advise you on whether or not this is a fair offer. This is because we do not know the extent of the matrimonial assets. In order to ascertain the extent of the matrimonial assets we need to obtain valuations.
  2. It would be in your best interests to appoint an independent financial adviser who specialises in divorce cases to help us in establishing the value of the assets and what a fair share might be.

Although the second piece of advice is clearly optional  the first piece of advice should not be. If the client wishes to accept the offer that has been made without first obtaining valuations, then the family lawyer should be absolutely clear with the client that he or she is accepting the offer of settlement against the advice of the lawyer. In some cases if the client does not accept this advice, the family lawyer might  feel uncomfortable and may not be able to continue acting.

For the avoidance of doubt, the family lawyer is not saying to the client that the offer is unfair or insufficient. The lawyer is saying that it is impossible to tell if the offer is fair because the valuation of the assets is not known.

In some cases it may appear that obtaining a valuation is quite straightforward. Surely there can be no disagreement about the value of a residential property. Looking at this type of issue dispassionately it is obvious that such a valuable asset should be formally valued.  Informal estimates of the value could be tens of thousands of pounds off the mark.

The value of any pensions involved in the case have to be obtained as at the date of the party separation. There may well be issues as to whether or not the whole Pension should be regarded as matrimonial property. There may be technical issues relating to the pension which affects its valuation or its accessibility. It should not be left to the client to obtain a valuation of the pension. The family lawyer should instruct a valuation on the client’s behalf, and if they have any doubts about the nature of the pension advice should be taken from the client’s IFA. In any event, an IFA will require to be involved  if the pension is to be shared.

If there is a family business, or indeed if there are any business interests that form part of the matrimonial property  a forensic accountant should be instructed to provide a valuation of the business interests as at the date the party separated.

Often, where only one of the parties is involved in the business, that party will suggest that the business has no value ( because he or she is the business) or that the value should just be taken as the sum of the assets brought out in a balance sheet drawn up by his or her accountant. 

Valuing an ongoing business is not a straightforward matter. Unless there is unequivocal evidence that the business has no significant value, an independent forensic accountant should be instructed to obtain a valuation. The obvious difficulty with this is the potential cost of the valuation. However some forensic accountants will agree to provide a restricted report indicating if it is worthwhile obtaining a full valuation report, the cost of such a restricted report will be materially less than the cost of the detailed report.

It is only once valuations have been obtained for all the matrimonial assets that the total value of the matrimonial property is known. At that stage it will be obvious what half of the matrimonial property amounts to ( although often less obvious as to how the assets should be shared).

If the client still wishes to accept an offer that does not represent half of the matrimonial property, then at least they are doing so in an informed way with full knowledge of the situation and how much they have to lose.

Without proper valuations  it is impossible to assess whether a financial offer to settle is fair or not.