Valuing the matrimonial portion of a business

How Is a Business Divided in Divorce?

When a business is involved in a divorce, the court must determine what portion of its value is matrimonial - and therefore subject to division - and what portion is non-matrimonial. This is a complex process that often requires expert valuation and legal analysis.

What Is the Matrimonial Portion of a Business?

The matrimonial portion refers to the value of the business that was built up during the marriage, or that was used to support the family. Any value that existed before the marriage, or that grew passively without contribution from either spouse, may be considered non-matrimonial.

Approaches to Valuing the Matrimonial Portion

There are various approaches which the court may take regarding the valuation of a business. From this, there has been notable debate as to the correct approach to determine the matrimonial and the non-matrimonial portions of a business. In particular, two distinct approaches have emerged: 

1. A ‘springboard’ approach 

2. A ‘straight line’ apportionment approach 

The Springboard approach  

This method recognises that a business may have had latent potential at the start of the marriage. If that potential was realised during the marriage, the court may attribute some of the growth to pre-marital efforts.

For example, in Jones v Jones [2011] EWCA Civ 41, the court held that the latent potential of the husband’s business at the start of the marriage should be considered a “springboard” in its value. The expert valuation of £2m was therefore doubled to reflect this, in a manner which the court recognised was arbitrary, rather than based on a mathematical approach. This was then increased to £9m to reflect the passive growth of the business, which was determined through reference to the relevant FTSE index. As such, the court valued the company at the start of the marriage at £9m, rather than £2m. Therefore, the portion of the business which was deemed matrimonial was decreased. This approach has also been referred to as the ‘formulaic approach’. 

The Jones approach was similarly adopted in IX v IY [2018] EWGC 3053 (Fam). The husband submitted that the valuation of his business at the start of the marriage should include its springboard potential and be subject to a form of indexation to reflect the business’ growth from the momentum caused by his “heavy lifting” in its development. Looking at this “heavy lifting” excluded the husband’s contributions to the business following the marriage, which were matched by the wife’s other contributions in the relationship and added value to the matrimonial portion of the business. The court recognised both the considerable latent potential of the business at the start of the marriage, as well as the difficulty in valuing this potential. Nevertheless, this latent potential or ‘springboard’ and passive growth was taken into account. Thus, the matrimonial portion of the business was reduced. Adopting what the judge deemed “the non-formulaic approach”, he determined that 40% of the business was non-matrimonial.  

The straight line apportionment approach

The ‘straight line’ apportionment approach was adopted by Mostyn J in WM v HM [2017] EWFC 25. This approach plots the value of a business at the time it was incorporated on one end of a graph, and its value at the date of the final hearing at the other. A straight line is then drawn between the two points.  

Mostyn J justified this approach by his assertion that it “resonates with fairness” by more accurately representing the “true latency of the business at the time that the marital partnership was formed”. To emphasise this view, he posed the question: 

“The linear approach is the evaluation which I make in this case. It resonates with fairness. It reflects my opinion of the true latency of the business at the time that the marital partnership was formed, and that, intrinsically, value is (at least) as much a function of time as it is of work or market forces. In argument, I asked "how could it be said that a day’s work in 1980 in creating this company was less valuable than a day’s work last week?" In my judgment, the answer is that it could not.” 

When the case was appealed in Martin v Martin [2018] EWCA Civ 2866, Moylan LJ held that Mostyn J had not been wrong to adopt this approach.  

which approach is correct?

Ultimately, both approaches are available, and the court will choose its own methodology based on the specific circumstances of the case before it. Each approach has its own merits, and the court is not bound to choose one over the other. This idea was helpfully expressed by Holman J in Robertson v Robertson [2016] EWHC 613 (Fam), who held that “methodology is a tool and not a rule”.

FAQs: Business Valuation in Divorce

Q: Is my business considered a matrimonial asset?

A: If it was created or grew during the marriage, at least part of it may be considered matrimonial.

Q: Can I keep my business after divorce?

A: Yes, but you may need to compensate your spouse with other assets or a lump sum.

Q: How is business value calculated in divorce?

A: Through expert valuation, considering both financial data and the timeline of the marriage.

Q: What if my spouse had no involvement in the business?

A: Even if one spouse ran the business, the other’s indirect contributions (e.g. childcare) may justify a share in its value.

In financial remedy proceedings, obtaining an accurate valuation of both parties’ business interests is key. If you are considering or going through a divorce, and either you or your spouse have a business or business interest, contact Vardags today for a free initial consultation with one of our specialist divorce solicitors.  

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