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Divorce – A fair division of assets

Divorce is in the news at the moment, with the amicable split between Kim Kardashian and Kanye West and, more curiously, the landmark case of the Chinese housewife, who will receive 50,000 yuan (£5,460) for five years of unpaid labour.

The financial stakes are rather higher in the ‘Kimye’ divorce, with more than $2.1 billion worth of assets to divide, but in both cases, apart from the emotional turmoil attached to the separation, splitting the assets fairly is key to each party moving on with their lives.

The Chinese court made the ruling in accordance with the country’s new civil code, which entitles spouses to seek compensation from their partners during a divorce if they bear more domestic responsibility, including raising a child and caring for elderly relatives.

This also entails ensuring that both financial and non-financial contributions are recognised fairly. As the judge in the case said, housework can “improve the ability of the other spouse to achieve personal, individual academic growth”, so it must be taken into account.

In the UK, splitting assets has long taken each spouse’s contribution into account. For example, a judge will consider any contribution made by looking after the home or caring for the family.

In addition to the contribution of the parties, the courts can consider the degree to which assets have increased in value during a marriage or relationship. This may be relatively easy in the case of property assets but is much more subjective in the case of a family business.

Roger Isaacs, Forensic Partner at Milsted Langdon said: “We are frequently being asked to value companies in the context of family financial proceedings, not only as they are now, but also to try to assess their historical value at the date the parties married or first began to cohabit.

“This historical assessment has to be undertaken without using the benefit of hindsight and seeks to establish the price at which the company would have been sold in a hypothetical scenario.

“In some cases, the courts have applied an uplift to these historical values both for inflation and also for the so-called ‘Springboard’ effect. This Springboard is intended to reflect the latent potential of the company but it is an anathema to most valuation experts, as is the associated concept of ‘passive economic growth’.

“In the opinion of most business valuers, it is difficult to conceive of any unquoted company growing ‘passively’, because small businesses typically require constant, active day-to-day decision-making by their directors if they are to succeed.”

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