£12M Divorce Case

Graham Ball :: Friday 29th March 2019 :: Latest Blog Posts

In this case, a single joint expert had been appointed to value a group of businesses owned by Mr and Mrs A.

Mr & Mrs A were in the process of a very acrimonious divorce.

As the company accountant was effectively acting for the husband, I was instructed by Mrs A to act for her and to look at all aspects of the valuation, the settlement and ongoing tax issues on her behalf.

The valuation of the businesses was very complicated with six businesses and five properties, all with different ownership structures (Partnerships, Limited Companies, Sole Traders) and some with third party interests.

I was instructed a week before the case was due to go to the High Court and did not receive the valuation from the joint expert until two days before the hearing.

In reviewing the valuation there was a logical methodical process to follow through. The valuation was effectively based upon maintainable profits. Many of the adjustments to actual profit related to other "group" businesses and so where the cost was applied in one business, it had to be credited in another.

Upon reviewing the valuation, I discovered what I believed to be a fundamental flaw buried deep within in the calculations. I was certain that where quasi rents had been applied to achieve maintainable profits, no credit had been applied to the group companies that owned these premises. I attempted to contact the expert to try and confirm my understanding, but was unable to do so. I therefore had to record my findings in a very concise and clear manner. I attended court, where outside the court room the expert arrived twenty minutes before the case was to be heard.

It took me five minutes to clearly identify my concerns and a further five minutes later the expert concurred with my view. We then explained to the Husband's accountant and solicitor that this had the effect of uplifting the valuation by £1.6m.

Having laid out my understanding and my calculations clearly, it was relatively simple to get this agreed. On going before the judge the settlement to my client was ultimately increased by some £500,000.

Although not part of my remit, in the same case I also identified that a Film Partnership investment of £100,000 had been shown as an asset of my client. Given that she had received the tax relief already, it was in fact a liability as Film Partnership Schemes are effectively a tax deferment vehicle, which the solicitor had not been made aware of by the Company accountant.

The issue here was much larger as the £100,000 identified by the lawyer was only the difference in Film Partnership investment between husband and wife. In addition Mr & Mrs A had jointly invested some £500,000, upon which they had already received Income Tax relief. However due to HMRC investigation of such schemes, final settlement has still not yet been achieved.

During the investigation it was necessary for me to be sympathetic, but firm with my client. There were many accusations about the financial activities that Mrs A was making, the majority of which could not be supported, verified or indeed investigated.

It was necessary for me to stick to the facts and the things that could be measured or assessed and to try and keep Mrs A focused on the things that would make a tangible difference to the case.

The client has subsequently instructed me to act on behalf of the business that she now runs personally.