Donald Trump divorce – real or fake news when valuing a family business on divorce?

12 September 2017

In an interview with Hello! Magazine in September 1991, the “People's Millionaire”, Donald Trump, announced his comeback and intention to marry Marla Maples. 

He was asked two questions about the divorce from his ex-wife Ivana:

“Did your sensationalist divorce speed up your financial difficulties?” and

“If your figures are stable now, how is it that a year ago you were on the brink of bankruptcy?  Did it have something to do with confusing your ex-wife’s lawyers?”

In a style we are now accustomed to, he responded:

“Some people have said that…but what is certain is that my bad financial position speeded up the divorce process.”

“I won the hearing mainly because of her poor choice of lawyer.”

“My ex-wife Ivana was demanding $2,000M but I had to pay her $25M.”

Valuations of family businesses in divorce proceedings

I have definitely practiced family law since 1991 but find it very hard to remember any family business connected to my work that was not said to be experiencing or facing a significant loss in revenue, and value at the time of divorce. 

If there was any doubt about the importance of the value of a business in divorce then the following words of a High Court Judge in 2001 became compelling:

“I think it must now be taken that those old taboos against selling the goose that lays the golden egg have largely been laid to rest; some would say not before time.  Nowadays the goose may well have to go to market.”

In other words, the family business is considered a resource under Section 25(2)(a) of the Matrimonial Causes Act 1973, and Section 24A of the same Act gives the Judge the power to order the sale or transfer of shares (but only with great difficulty the actual assets owned by the company).  Valuations of businesses at the time of divorce have become routine although the Courts have recognised that the valuations are a guide and not a precise science and should be based on the present not the future value unless there are exceptional circumstances. 

In some situations, for example, where a business is started before the marriage, or there is an argument that the business has increased in value after the marriage, the Court can order an historic valuation.

The practice of the divorce Courts is to appoint a single joint expert who usually reports to the Court on value, liquidity, maintainable earnings as well as the tax implications of a sale or transfer of shares.

However, most divorce lawyers also use a “shadow expert” who helps them persuade the Court of the need for a valuation if there is any doubt; assists with requests for information to hunt down relevant documents; helps frame the actual instruction of the joint expert; and then interprets its findings.  The shadow expert is the ferret of the family law world and a good one is invaluable. 

The basis of the valuation also depends upon the nature of the business.  A property company and a farm will usually be valued by its assets whereas trading companies are valued by their earnings. 

With the right forensic help, “fake news” generated by the owner about the suggested value, failure and/or success of a business can be reality checked - but, as with so much in life, timing is everything.  Divorcing in times of recession or political upheaval and uncertainty may prove beneficial to the owner of a family business in the long run as their pessimism is supported by an economic reality (which may be short-lived).  We may be living, or about to live, through such times where it will take a robust defence, clear guidance from lawyers and accountants as well as a strong nerve by the client to achieve a result that will appear fair in hindsight.  What could be worse when you have just settled your “£2,000M” claim so cheaply to hear the words “I’m back…assets of the Trump group are more solid than ever”?

Further information

If you have any questions about the issues raised in this blog, please contact a member of our team of family and divorce lawyers.

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