The issue of discounting business valuations has long been argued in divorce cases. There have always been two competing arguments:

  • One being that the risky nature of businesses is already factored in to the valuation exercise carried out by an accountant and so to discount further to account for risk would be to count the risk twice.
  • That compared to “copper bottomed” assets such as property or cash-based investments, businesses are intrinsically volatile and so the person taking on the majority of their share of the marital pot in the form of shares in a business are much more vulnerable to future devaluation and therefore some discount should be applied to reflect that.

Recent cases demonstrate that the timing of the divorce is very relevant when it comes to whether a court is likely to discount a business valuation.

E v L (2021)

In this case, His Honour Judge Mostyn applied a discount of 45% to the single joint expert accountant’s valuation of the business. That primarily resulted from the Judge asking the single joint expert how much work has to go in by a business owner in the lead up to a sale of a company. Roger Isaacs, the single joint expert in the case, explained to the court that the business owner would probably work their hardest for approximately two years leading up to a sale to get everything ready and go through all of the due diligence process required by the buyer’s lawyers and accountants.

As there is a general principle in divorce cases that the earning capacity of a spouse post-divorce is not a shareable commodity (and as such a spouse will only ever have an income needs-based claim on their former spouse’s earnings post-divorce) the Judge applied that significant discount to ensure the wife would not benefit from the effort that would go into getting a business ready for a sale which would all happen after the divorce had concluded.

In that case the husband was not the only Director and Shareholder and so the Court weighed into the balance that some of that effort would be carried out by a third party. He also found that the business had been impacted by the pandemic and it was uncertain how it would recover in future years (the business operated in the entertainment sector). Those reasons combined led the Judge to his conclusion and so that level of discount (45%) may not be applied in other cases.

DR v UG (2023)

In a slightly different context, this case involved a husband who had already sold a company for £400,000,000 and received £275,000,000 for his shareholding by the time the case came to court. However, the business was sold three years after the parties had separated.

He argued that as his work to maximise the value of the business and achieve that sale price was all done post-separation, the Court should discount the value of the business sale proceeds (by classing the increase in value post separation as non-matrimonial property) before arriving at the amount he should share with his wife.

Mr Justice Moor decided that was not appropriate as the husband had traded with a marital asset in order to maximise the sale value and because it had already been crystallised by the time the divorce settlement was being reviewed by the Court, all of the sale proceeds would have to be shared equally after their long marriage.

It is therefore crucial for business owners who may be considering both separating from their spouse and selling their business interest to take early advice to ensure that they don’t fall into the trap of the husband in DR v UG. The timing of the sale is critical in terms of whether an argument that a discount should be applied to the valuation is going to be relevant.  If the sale has already been completed by the time of the divorce then the expectation would have to be that the full sale proceeds will be shared with the spouse.


If you require assistance regarding your business value during a divorce please feel free to contact our Family Team and we would be happy to help.