The past 12 months have certainly been turbulent for the UK and the rest of the world. A nation negotiating the bumpy road out of a 47 year-long relationship with the EU whilst also attempting to stay alive during a global pandemic, probably makes H.G Wells’ novel ‘War of the Worlds’ seem plausible.
But which of these two economy-changing events has been the most catastrophic for business and for the individuals behind those businesses? From a legal point of view, both will be major contributing factors when parties try to agree on the value of their business in the midst of their post-pandemic divorce.
Business value reduced by 10% as a result
In a judgment handed down in late 2020 by Mr Justice Mostyn, the Court was responsible for deciding, rather unusually, the effect on the matrimonial assets of both the Covid-19 global pandemic and a no-deal Brexit.
This particular case was in relation to a 25 year marriage. The husband and wife ran family business for a number of years. The husband ceased working there and instead, set up a second identical business on his own, running in competition.
The Judge had to consider various other arguments such as hiding assets, but one of the major issues he had to settle was how the effects of both the pandemic and Brexit would impact the value of the businesses.
Barristers for the wife argued that a 10% discount in the value of the business should be applied to both the trading and surplus assets because of the uncertainty and future disruption that would ensue. Specifically, in relation to Covid, the business supplied a range of other companies who were undoubtedly impacted by the global crisis and orders would be reduced. Having regard to Brexit, Counsel argued that a significant part of the business was with customers who were located in the EU. They strongly suggested that if no trade agreement was reached by the end of 2020, this would inevitably have an adverse impact on the business the wife continued to run.
After hearing both parties’ claims and much deliberation, Justice Mostyn agreed that a 10% discount should be applied to the business valuation, but only in respect of the trading value, not the surplus assets.
Advice for business owners
Any valuations prepared in or around the first half of 2020 could now be potentially reduced, depending on the type of business and its trading partners.
If you find yourself thinking about divorce or are on the receiving end of a divorce petition and you own business assets, you can be confident that our experts will guide you through the whole process. The advantage of having strong family and commercial teams means we can work alongside each other to reach an outcome together, without you having to seek independent advice elsewhere on certain aspects of your business.
Contact our family team: Michele Ashton, Stacey Coyles or Judith O’Brien on 01229 580956
The content of this post does not constitute legal advice and should not be relied upon. The content is subject to change and we accept no liability for individuals relying on the information within this article.