Business Valuations - Value to the Owner?

In family law, business valuations are not merely academic exercises, they influence the division of property and can significantly impact financial settlements. One of the key principles in this context is “value to the owner”, which often contrasts with the standard “fair market value” used in commercial settings.

So how do these two concepts differ?

What is Fair Market Value?

Fair market value is a widely accepted standard of value in business valuations and is defined as:

“The price, expressed in cash equivalents, at which property would change hands between a hypothetical willing and able buyer and a hypothetical willing and able seller, acting at arm’s length in an open and unrestricted market, when neither is under compulsion to buy or sell and both have reasonable knowledge of the relevant facts.”

This definition assumes a hypothetical market and disregards the specific circumstances of the actual owner. It applies standard valuation techniques and discounts for things like minority interests or lack of marketability when relevant.

Value to the Owner: A Family Law Perspective

In family law, the concept of value to the owner has emerged to reflect the actual benefit a party derives from owning a business interest, even if that interest is not easily saleable on the open market.

This concept is particularly relevant when:

• A party owns a minority interest in a family-controlled business;

• The company is privately held and not readily marketable;

• The owner derives personal or financial benefits that a third party may not receive.

For instance, the owner may:

• Draw a consistent salary;

• Receive dividends;

• Access motor vehicles, loans, or other lifestyle benefits;

• Exercise control or influence in business decisions.

As the courts have observed, these are real economic benefits, even if the shares are not likely to be sold or do not have a ready market.

Key Case Law Supporting “Value to the Owner”

The Family Court has repeatedly emphasised the importance of looking at the reality of ownership, not just the hypothetical sale price:

Scott & Scott (2006) FamCA 1379

“The concept of ‘value to owner’ considers and takes into account the benefits to a particular owner even though this may not be based on a hypothetical third-party purchaser.”

Harrison & Harrison (1996) FLC 92-682

“The husband’s shares can only be valued on the basis of their worth to him... That worth is substantial.”

Clarkson & Clarkson [2008] FamCA 1098

“If a party is likely to retain their shareholding, the appropriate objective for valuation is ‘value to owner’, on the basis that a benefit is derived over and above an eventual sale price.”

Do Value to the Owner and Fair Market Value Overlap?

In some cases, yes. As Warwick J observed in AJW v JMW (2002) FLC 93-103:

“Where there is a market for shares, evidence of market value may well be one and the same as ‘value to the owner’.”

However, where shares are unlikely to be sold, or where control and personal benefits are significant, value to the owner will generally be higher than what the open market would offer, because it accounts for ongoing, personal advantages.

Why It Matters in Family Law

Family law isn’t concerned solely with what a hypothetical buyer would pay, it’s about what the asset is worth to the person who owns it and who may continue to benefit from it indefinitely.

That’s why understanding value to the owner is critical. It ensures that business interests are properly accounted for in property settlements, particularly where one party retains operational control or receives lifestyle benefits from the business.

Need Expert Business Valuation Advice?

At Dolman Bateman, we specialise in providing business valuations for family law matters. Whether it’s a complex shareholding or a privately run business, our forensic accountants deliver clear, expert analysis tailored to court requirements.

Get in touch today to discuss how we can help protect your interests in a family law matter.

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Disclaimer:

The information provided in this article is general in nature and does not constitute personal financial, legal or tax advice. While every effort has been made to ensure the accuracy of this content at the time of publication, tax laws and regulations may change, and individual circumstances vary. Dolman Bateman accepts no responsibility or liability for any loss or damage incurred as a result of acting on or relying upon any of the information contained herein. You should seek professional advice tailored to your specific situation before making any financial or tax decision.