Single joint expert accountants in divorce: business valuations and financial remedy proceedings

When a business forms part of the matrimonial assets, establishing its value can be one of the hardest parts of reaching a financial settlement.

Unlike cash, savings or investment portfolios, the value of a privately owned business is rarely straightforward. It may depend on future profitability, the involvement of its owners, market conditions and whether the business could realistically be sold.

For family law solicitors, reliable and independent financial evidence is therefore essential. An accountant acting as a single joint expert (SJE) can help the parties and the court understand what a business is worth, what income it generates and what a proposed settlement would mean financially.

What does a single joint expert accountant do in divorce proceedings?

A single joint expert (SJE) accountant is an independent accountant instructed by both parties, with an overriding duty to the court, to give expert financial evidence in financial remedy proceedings. Typical tasks include valuing a business or shareholding, assessing a business owner’s sustainable income and considering whether funds can be taken out of a company to fund a settlement.

Under Part 25 of the Family Procedure Rules, expert evidence is restricted to what is necessary to assist the court in resolving the proceedings, and a party needs the court’s permission to put it before the court. Where two or more parties wish to rely on expert evidence on the same issue, the court may direct that it be given by a single joint expert.

An SJE accountant may be asked to address:

• Business valuations: the value of a private company, partnership interest, professional practice or shareholding.
• Income assessments: the sustainable earnings of a business-owning spouse, including salary, dividends and other benefits.
• Business liquidity: whether funds can realistically be extracted without jeopardising the business’s operations.
• Tax implications: the tax consequences of selling shares, transferring ownership or extracting funds, within the expert’s agreed remit.
• Financial information: company accounts and supporting records, including inconsistencies and areas needing clarification.

How is a business valued in a divorce?

Business valuation is rarely a matter of reading the latest balance sheet. The accountant must consider the nature of the business, its financial performance, its market and the ownership interest being valued. A minority shareholding, for example, raises different questions from a controlling stake, including restrictions on sale and the degree of influence the holder has.

No single method suits every business. The expert chooses an approach, explains why, and often cross-checks it against another.

Earnings-based valuations

For profitable trading businesses, an earnings-based approach may be appropriate. It typically involves assessing maintainable earnings, adjusting for exceptional or non-recurring items and applying a suitable multiple. The expert must also consider whether historic performance is a reliable guide to future profitability.

Net asset valuations

For businesses holding substantial property, investments or other assets, a net asset approach may suit better. It considers the underlying assets after liabilities and relevant adjustments, although the balance sheet figures may not reflect the true economic value of those assets.

Discounted cash flow valuations

Where future cash generation can be forecast with reasonable reliability, a discounted cash flow approach may be considered. Future cash flows are estimated and discounted for the time value of money and the risk of not receiving them. The result depends heavily on the reliability of the forecasts and assumptions.

Personal goodwill and enterprise goodwill

A business may depend on the skills, relationships or reputation of one spouse. A professional practice, for example, may be profitable largely because of its principal, and those profits may not survive that person’s departure.

The expert therefore considers the split between enterprise goodwill, which belongs to the business and could pass to a buyer, and personal goodwill, which depends on the individual’s continued involvement. The split can have a significant effect on the reported value, and it is one reason the instructions should say what assumptions to make about the owner’s future role.

A business valuation is not a cash figure

The value of a business and the funds that can be realised from it are different things. A company may have a substantial valuation and modest cash reserves, with its value held in property, equipment, working capital or expected future earnings. Releasing large sums could require borrowing, selling assets or selling the business.

An SJE accountant may be asked to assess:

• Available cash and working capital requirements.
• Existing borrowing and financial commitments.
• The extent to which retained profits can be distributed.
• The sustainability of future dividend payments.
• The tax consequences of extracting funds.
• Whether a proposed settlement could threaten the viability of the business.

A business valued at £2 million can leave its owner with far less than £2 million in accessible funds. That matters when the court is considering how a settlement might be funded without damaging the asset that produces the income.

Assessing the income of a business-owning spouse

The income on a director’s personal tax return may give an incomplete picture. Business owners can be paid through salary, dividends, benefits and other arrangements, and some leave profits in the company.

An SJE accountant may be asked to examine the company’s position and report on the owner’s sustainable income. That can involve reviewing:

• Salary, bonus and dividend history.
• Retained profits and the reasons for retaining them.
• Director’s loan accounts.
• Personal expenditure paid by the business.
• Working capital and reinvestment needs.
• Forecast profitability and cash flow.

Retained profits are not automatically income available to the shareholder. The accountant sets out the commercial requirements of the business, the company’s distribution position and the alternatives, and the court decides how those figures should be treated. A well-prepared assessment helps the court separate historic remuneration, available financial resources and income that can reasonably be expected in future.

Why appoint a single joint expert rather than separate accountants?

Practice Direction 25D provides that, wherever possible, expert evidence in financial remedy proceedings should be obtained from a single joint expert instructed by both or all of the parties.

In BR v BR [2024] EWFC 11, Peel J reviewed Part 25 and PD 25D and directed a single joint expert to value substantial business interests, noting that the rule-makers deliberately used the words “wherever possible” in family proceedings, unlike the civil rules. The judgment also discusses how the approach can vary with the size and complexity of a case, so solicitors should take advice on the likely approach where the sums are large.

The main advantages are:

• Consistency: both parties receive an opinion based on the same methodology, information and stated assumptions.
• Cost: one report avoids paying for, and then reconciling, two competing valuations.
• Independence: the expert’s primary obligation is to the court.
• Focus: a well-structured report helps solicitors see which financial issues remain in dispute.

An SJE’s opinion is still open to testing. Under FPR 25.10, either party may put written questions to the expert. Unless the court directs otherwise, the questions must be proportionate, may be put once only, must be put within 10 days of service of the report and must be for clarification. The answers form part of the report. Each party may also instruct a shadow expert to help with the letter of instruction and the questions, and the court keeps control over whether any further expert evidence is allowed.

When is permission applied for?

A party needs the court’s permission before putting expert evidence before the court. Unless the court directs otherwise, in financial remedy proceedings the application should be made as soon as possible and no later than the first appointment. The court may allow a later application where there is good reason, for example where valuations are agreed for the financial dispute resolution appointment and expert evidence is only needed if the case goes to a final hearing.

The application must state the field of expertise, the issues the evidence will address and whether it could be obtained from a single joint expert. Raising the question of an SJE early gives the parties time to agree the expert and the instructions.

Getting the letter of instruction right

Where the court directs an SJE, the instructions are given in a jointly agreed letter unless the court orders otherwise. If the parties cannot agree, the court can settle the instructions on the written request of any party. The quality of the letter has a large effect on how useful the report is.

An effective letter identifies the questions the accountant must answer and the information available. Points to cover include:

• Valuation date: the date at which the business or shareholding is to be valued.
• Scope: the whole business, a particular shareholding or another ownership interest.
• Assumptions: facts that are agreed or disputed, including the owner’s future involvement.
• Disclosure: the accounts, management information, tax records and other documents to be supplied.
• Income and liquidity: whether the expert should address sustainable income, available cash and the effect of extracting funds.
• Reporting: the timetable, fees, whether a range of values is wanted and any specific questions.

Where material facts are disputed, ask the expert to work through alternative scenarios and leave the disputed facts for the court to decide. The expert should also explain any limits in the information provided and how those limits affect the conclusions. Early contact between the instructing solicitors and the proposed expert helps keep the instructions proportionate and achievable within the court’s timetable.

What should solicitors look for in an SJE accountant?

• Business valuation experience: practical work valuing private businesses, professional practices and different shareholding structures.
• Financial remedy experience: familiarity with how business assets are treated in divorce proceedings.
• Expert witness experience: a working knowledge of Part 25 and Practice Direction 25B, including independence, report content and the duty to the court.
• Clear communication: the ability to explain technical points to solicitors, the parties and the court.
• Proportionate fees and timescales: a clear scope, a cost estimate and availability to meet court deadlines.

A useful report answers the questions asked, sets out its reasoning step by step and states where the figures are uncertain.

Frequently asked questions

Single joint expert accountant services from UHY Williamson Croft

UHY Williamson Croft provides independent accountancy and business valuation evidence in financial remedy proceedings involving privately owned businesses. Our work includes [list only services actually offered: business and share valuations, income assessments, liquidity analysis, expert witness reporting].

Instructing an SJE accountant

If you are a family law solicitor looking for an independent accountant to value a business or analyse income in divorce proceedings, contact Taylor Rogers as below to discuss the case, our availability and the likely scope of work.

This article provides general information about financial remedy proceedings in England and Wales and is not legal advice. The overriding duty of a single joint expert is to the court.