Divorce/matrimonial disputes Valuation Services

The Section 79 Framework

The Court’s approach to property settlement is generally described as a four-step process, and valuation sits at the foundation of it.

Step 1 — Identify and value the property, liabilities and financial resources of the parties. All property of both parties, whether held jointly, individually, or through companies and trusts they control. This is where the business valuation does its work.

Step 2 — Assess the contributions of each party, financial and non-financial, direct and indirect, including contributions as homemaker and parent.

Step 3 — Consider the s 75(2) factors — age, health, income and earning capacity, care of children, the duration of the relationship, and the effect of any proposed order on a party’s earning capacity.

Step 4 — Consider whether the proposed orders are just and equitable in all the circumstances.

The value of the business is not merely an input to step 1. It affects step 2, because contributions to the growth of a business are argued by reference to how much it grew. It affects step 3, because a business is often the operating spouse’s income source, and the Court’s treatment of that income interacts with how the asset itself is valued. And it affects step 4, because an order that requires a payment the business cannot sustain is unlikely to be just and equitable however the percentages were derived.

Valuation Basis in Family Law

Value to Owner, Not Necessarily Market Value

The standard applied in family law is not identical to the market value standard used for tax and financial reporting.

The Court is generally concerned with the value of the interest to the party who holds it, in circumstances where it is not being sold. For a business the operating spouse will continue to run, a hypothetical arm’s length sale is not what is happening — so the valuation question is what the interest is worth in the hands of the person retaining it.

This has practical consequences. Costs of disposal that would be deducted in a market value assessment may not be, where no sale is contemplated. Conversely, where the business will have to be sold to fund the settlement, disposal costs and tax become directly relevant. The valuer needs to understand which scenario is in play, and the basis adopted needs to be stated explicitly rather than assumed.

Goodwill — Personal and Commercial

The single most contested issue in professional practice and owner-operated business valuations.

Commercial goodwill attaches to the business itself — its systems, brand, location, contracts, recurring client base and trained staff. It is transferable and forms part of the value of the entity.

Personal goodwill attaches to the individual — their reputation, skill, relationships and personal following. Where the value of a business depends on the continuing personal exertion of the operating spouse, that component is generally not treated as a separable asset of the business, because it cannot be sold and it will not survive the individual’s departure.

The distinction matters enormously. A sole practitioner professional practice with no transferable client base and no saleable infrastructure may have little or no goodwill value beyond net tangible assets, notwithstanding that it generates a substantial income. That income is dealt with as earning capacity under s 75(2), not as a capital asset — and running the same economic reality through both steps is double counting, which is a recognised error the Court will be alert to.

Distinguishing the two requires analysis of the actual business: whether clients contract with the entity or the individual, whether there is a referral network independent of the principal, whether there are employed practitioners generating fees, whether the business could operate through a replacement, and what the market for practices of that type actually pays.

Minority Interests and Control

Where the interest being valued is a minority parcel in a company with other unrelated shareholders, discounts for lack of control and lack of marketability are ordinarily relevant. Where the parties between them control the entity, or the parcel forms part of a controlling block, the analysis differs.

The Court has been sceptical of mechanical discounting where the practical reality is that the operating spouse controls the business regardless of the shareholding on paper — so a discount needs to be reasoned from the actual circumstances, not applied as a convention.

Notional Tax and Realisation Costs

Where an order will require the disposal of an asset, or where a company will need to distribute funds to enable a payment, the tax consequences are relevant to what the interest is actually worth to the party receiving it.

Whether latent capital gains tax should be allowed for depends on the likelihood of a disposal. Where a sale is inevitable or is required by the orders, the tax is generally taken into account. Where the asset will be retained indefinitely, allowing for tax on a sale that may never occur is harder to justify. The valuer’s role is to quantify the effect and identify the assumption; the weight given to it is a matter for the Court or for negotiation.

Add-Backs and Normalisation

Owner-operated business accounts frequently do not reflect commercial reality. Normalisation adjustments commonly required include:

• Principal’s remuneration — Adjusting owner salary to a commercial market rate for the role performed, which is often the largest single adjustment and directly determines the earnings the valuation capitalises
• Related-party rent — Where premises are owned by a related entity at above or below market rent
• Private expenses run through the business — vehicles, travel, home costs, family members on the payroll not performing commensurate work
• Non-recurring items — One-off legal costs, insurance recoveries, COVID-era support payments, abnormal gains or losses
• Related-party transactions on non-commercial terms
• Assets surplus to the business — Investment property, excess cash, passive investments held inside the trading entity, which are valued separately rather than through the earnings multiple

These adjustments are frequently the real battleground. A dispute over whether the principal’s commercial salary is $180,000 or $280,000 can move the valuation by a multiple of that difference.

Valuation Methods

The approach must fit the business, and the report needs to explain why it was chosen.

Capitalisation of future maintainable earnings — The most common method for established, profitable businesses. Requires a normalised maintainable earnings figure and a multiple derived from comparable transactions and listed company multiples, adjusted for the size, risk and growth profile of the subject business. Both the earnings and the multiple are contestable, and both need supporting.

Discounted cash flow — Appropriate where reliable forecasts exist and the earnings profile is expected to change materially. Less commonly the primary method in family law, because forecasts prepared by one party after separation attract obvious scepticism.

Net asset value — For asset-holding entities, businesses in decline or wind-down, or where earnings do not support a value above the assets. Also used as a floor and a cross-check.

Rule of thumb and industry benchmarks — Fee multiples for accounting and financial planning practices, per-chair valuations for dental practices, per-patient metrics for medical practices. These have real evidentiary currency in professional practice matters because they reflect what practices actually transact at — but they are a cross-check, not a substitute for analysis, and they need to be sourced to actual market evidence.

Recent transactions — Where there has been a genuine arm’s length offer, a buy-in or buy-out of a partner, or a shareholder agreement transaction, that evidence is important. Related-party transfers and agreement formulas that were never tested against the market carry less weight.

Expert Evidence in the Court

The Single Expert

The Federal Circuit and Family Court’s practice strongly favours a single expert jointly instructed by both parties, appointed by agreement or by Court order. The single expert owes an overriding duty to the Court, not to either party or to whoever pays the fee.

Single expert engagement is generally the most efficient path: one valuation, one fee shared between the parties, and a number both sides work from. Where a party wishes to challenge a single expert’s conclusion, the ordinary course is to seek leave to adduce further evidence, which is not granted as a matter of routine.

Shadow Experts and Consulting Engagements

A party may engage a valuer in a consulting capacity — to review a single expert’s report, identify weaknesses in methodology or assumptions, formulate questions for cross-examination, or advise on the merits of a settlement position. This work is generally not filed as evidence and is often subject to legal professional privilege where properly engaged through the solicitor.

This is distinct from a shadow expert report intended to be relied on, which requires the Court’s leave and must meet the same standards as any expert report.

Duties and Report Requirements

An expert giving evidence in family law proceedings must comply with the Court’s expert evidence practice directions and the applicable code of conduct for expert witnesses. In substance this requires:

• An overriding duty to the Court, above any duty to the party engaging the expert
• Independence, and disclosure of any relationship with a party
• Setting out the expert’s qualifications and expertise in the relevant field
• Stating the facts, assumptions and instructions on which the opinion is based
• Explaining the reasoning from those facts to the conclusion, so it can be tested
• Identifying material limitations — information not provided, matters outside the expert’s expertise, assumptions that could not be verified
• Disclosing where the expert’s opinion is not fully researched or is provisional
• Providing a supplementary report where the expert changes their view

Report requirements and practice directions are updated from time to time, so the current version applicable in the relevant registry should be confirmed with the instructing solicitor.

Disclosure — The Practical Bottleneck

Parties to family law proceedings have a duty of full and frank disclosure of their financial circumstances. In practice, obtaining what a valuer needs from a business controlled by one spouse is often the slowest part of the matter.

A proper valuation generally requires several years of financial statements and tax returns for every relevant entity, management accounts to the most recent date, the shareholder or partnership agreement, leases, key contracts, loan documents, details of related-party transactions, and access to the person who runs the business. Where disclosure is incomplete, the valuer must say so and identify the effect on the conclusion — a valuation prepared on incomplete information with the limitation buried in an appendix is of little use to anyone.

Valuation Date

The Court generally values property as at the date of the hearing, not the date of separation, though the parties’ respective contributions during the period of separation are relevant to the contributions assessment.

This matters where a business has changed materially since separation. A business the operating spouse has grown substantially post-separation, or one that has deteriorated, raises questions the valuer needs to address: what the value is now, what it was at separation, and what caused the difference. In practice a valuation at more than one date is sometimes required, and the instructions should make clear which dates are needed.

Common Failure Points

• Personal goodwill treated as a business asset, capitalising income that depends entirely on the operating spouse’s continued exertion
• Double counting the same earnings as both a capital asset and as earning capacity under s 75(2)
• Principal’s remuneration not normalised, or normalised to a figure that cannot be supported by market salary evidence
• Accountant’s valuation adopted as independent evidence, where the accountant acts for the business and the operating spouse
• A rule of thumb applied without market evidence, or as the sole method rather than a cross-check
• Mechanical minority discount applied where the operating spouse controls the business in practice
• Notional CGT allowed for a sale that will never happen, or ignored where a sale is required by the orders
• Surplus assets left inside the earnings multiple, understating or overstating value
• Valued at the wrong date, or a single date where the change since separation is material
• Disclosure gaps not identified, leaving a conclusion that appears more robust than the evidence supports

InteleK’s Approach to Family Law Valuations

Our accredited valuers prepare valuations for family law proceedings that hold up under cross-examination. Here’s what sets our process apart:

Independence, Stated and Real — Where we act as single expert, our duty is to the Court, and the report is written that way regardless of which party pays. We do not act for a business and then value it for the proceedings.

Personal Versus Commercial Goodwill, Reasoned — We analyse whether the value of the business genuinely survives the departure of the principal, by reference to how clients contract, whether there is a referral base independent of the individual, whether other fee earners exist, and what the market for comparable practices actually pays. We state which component is which and why.

Normalisation Adjustments Sourced — Principal’s remuneration benchmarked to market salary evidence for the role, not asserted. Add-backs itemised with the basis for each, so each can be tested rather than accepted or rejected as a block.

Method Selection Explained — Capitalisation of earnings, DCF, net assets, or a combination, with the reasoning for the choice and cross-checks against industry benchmarks where genuine market evidence supports them.

Disclosure Gaps Identified Clearly — Where we have not received what we need, the report says so, in the body and not only in an appendix, with the effect on the conclusion stated.

Written to Be Tested — Every assumption, instruction and item of information relied on is set out, and the reasoning from facts to conclusion is traceable. A conclusion that cannot be followed step by step is a conclusion that will not survive cross-examination.

Available for Conference and Evidence — We attend expert conferences, respond to questions from either party’s solicitors, and give evidence where required.

Consulting and Review Engagements — Where you are acting for a party and need a single expert’s report reviewed, we identify the methodological and assumption weaknesses, and provide the questions worth asking.

Working With Your Solicitor — We take instructions from the solicitor, on the questions the Court needs answered and at the dates that matter. Family law valuations that go wrong usually went wrong in the instructions.