Why is an industrial business harder to value in a separation?
Usually one spouse runs the business and knows it in detail, while the other sees only the tax returns, the drawings and the lifestyle the business has paid for. Industrial businesses add layers a café or a consultancy does not have: heavy plant on finance spread across more than one entity, a factory owned by a family trust and leased to the operating company, stock and work in progress that swing by hundreds of thousands of dollars from month to month, and earnings that ride a commodity or construction cycle. Each of these can move the value a long way, and each is easy to present in a light that suits one side.
The court's power to alter the parties' property interests sits in section 79 of the Family Law Act 1975 (Cth) for married couples and section 90SM for de facto couples. A business valuation is evidence of what one item of property is worth. It does not decide how the property is divided; that is for the parties, their lawyers and, if needed, the court.
What exactly is being valued?
Rarely just "the business". In an industrial group the value is usually spread across several interests, and each has to be identified and valued without counting anything twice:
- The operating company, which employs the staff, holds the customer contracts and the certifications, and earns the revenue.
- An equipment entity that owns the plant and fleet and hires it to the operating company. The hire charge moves profit between the two; it has to be set at market for either value to mean anything.
- A property trust that owns the factory. The real property is valued by a property valuer; the business valuation assumes a market rent.
- Loan accounts between the spouses, the entities and the trusts, which often run to large sums in family industrial groups and must reconcile across every set of accounts.
- Equipment finance and other debts that sit against the plant, including any personal liability one spouse has taken on for the business.
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How is the operating spouse's own work treated?
A valuer deducts a market cost for the work the owner does, whether that is general manager, chief estimator, workshop supervisor or all three, and values what the business earns beyond that. In a small fabrication or machining shop where the owner works on the tools and earns little more than a tradesperson's wage plus a return on the plant, there may be little value beyond the equipment, stock and debtors, less what is owed. In a larger manufacturer with a management team, the value rests on earnings that would continue without the owner on the floor.
The plant needs particular care. In a business whose earnings support the plant, the equipment is part of the business value and is not added on top. In a business whose earnings do not, what the plant would realise may set the value. Where the plant is a large part of the property, a formal plant and machinery valuation by a plant and machinery valuer may also be needed. Our article on how plant and equipment affects business value explains the distinction.
Which date is used, and why does it matter for a cyclical business?
The valuation date is agreed between the parties' lawyers or set by the court. For an industrial business the choice can matter more than for most. A mining services contractor valued straight after a large shutdown campaign will look stronger than the same business between campaigns; a fabricator with a major job half-built has cash, work in progress and progress billings that look very different a month later. A sound valuation looks through the timing to earnings that are maintainable across a cycle, and states how work in progress and billings were treated at the date.
Changes after separation also need explaining. If a major contract was not renewed, or plant was sold or refinanced, the report sets out what changed and what is maintainable now, so the parties and the court can weigh it.
What do lawyers ask about industrial businesses in a property settlement?
- Has plant been bought, sold, traded in or refinanced close to the separation, and at what values?
- Were stock and work in progress counted at the valuation date, and on what basis?
- Has revenue or a customer contract moved to a new entity or a related party?
- How are scrap metal and offcut sales recorded? In metalworking businesses they can be material.
- Are the director and shareholder loan accounts reconciled across every entity?
- Are vehicles, plant or the factory used privately, and is any related-party rent at market?
- Does the business depend on the operating spouse's personal relationships with a few large customers?
These are the points a valuation for a family law matter has to address, not leave for cross-examination.
Settlement valuation or expert report?
Many property matters settle through negotiation or mediation, using a valuation both sides are prepared to accept. Where proceedings are on foot, expert evidence is governed by the court's rules, and a single expert may be jointly instructed by agreement or by order. Family Law Valuations explains on its which report guide how a Settlement Valuation for negotiation differs from an Expert Report for filing or reliance in proceedings.
How do you start a family law valuation for an industrial business?
Go to Family Law Valuations' which report guide, or call us on 0433 475 518 (Mon to Fri, 9am to 5:30pm AEST) and we will put the matter with our family law practice. You can also use our quote form and choose family law as the purpose; the enquiry is routed to Family Law Valuations. Documents are only ever shared through the private upload link on the matter, never by email, and your information stays confidential.
Questions we are often asked
Can Industrial Business Valuations help with a family law matter?
Yes, through our dedicated family law practice, Family Law Valuations, which prepares family law valuations including those of manufacturing, engineering, logistics and other industrial businesses.
What does a family law valuation cost?
Family law valuations are priced by Family Law Valuations: a Settlement Valuation is $2,495 + GST and an Expert Report is $4,495 + GST. The fees shown elsewhere on this site are for commercial valuations and do not apply to family law matters.
Is the plant valued at what we paid for it?
No. Cost and written-down value are not market value. In a business whose earnings support the plant, the plant is part of the business value. Where it is not, what the plant would realise matters, and a separate plant and machinery valuation may be needed.
Does the business have to be valued if only one of us works in it?
Whether and how a business forms part of the property is a question for your lawyer. Where it does, the valuation is the same whichever spouse works in it, with the operating spouse's work costed at market.
Can we use a valuation that was done for a sale or for tax?
Not as a family law report. It was prepared for a different purpose and named users. It can still be useful background, so mention it to Family Law Valuations at the start.
Does someone need to inspect the factory?
Most valuations are completed from documents and conversations. If the operation or the plant needs to be seen, that is agreed and costed before the work starts.