Home Forums Money matters How to value a partnership to buy out other partner

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  • #1228970
    tryingsolo
    Participant
    • Total posts: 1

    TLDR: My ex-wife wants me to buy her out of our partnership which is essentially a business based on my skills. What’s it worth?

    In 2015, my wife and I started a business. We set it up as a partnership so that we could split income and make the most of our tax-free thresholds.

    At the beginning, we did both work in the business, which is very much focused on my expertise and experience. For the first year or so, she was active in the business but she stepped away after that. For the following four years, I worked alone and built it up year-by-year. We kept it as a partnership so we paid less tax, but anyone looking at the business would see that it was all me.

    Last year, we separated as a couple. We agreed at the time that I would get the business because that made sense. I’d built it up. It was based on my work. If I took it, it would grow. If she took it, she wouldn’t know what to do with it.

    The last financial year was sensational. Double the best previous year. She saw this and decided that actually I should buy her out of the business. I don’t mind paying a little bit, but we’re struggling to agree on how much I should pay.

    The business doesn’t have any major physical assets — a couple of laptops, one which she has anyway, and a few bits and pieces like that. The only value is in the income, which is essentially in my skills and experience. While I have spent time building up the brand, SEO and exposure, I’ve worked out that essentially all of the business in the past few years has come from my contacts and networks, which exist regardless of the business name.

    I’ve had a look at a few articles online about valuing the business and they don’t seem appropriate to my situation and they spit out numbers that I find laughably high.

    One thing that annoys me a bit is that I feel like I’m essentially paying money based on my success. While it would be a bit of nuisance to have to set up a new brand, I could resign from the business today and set up a whole new brand and tell all my/our clients that’s what I’m doing. I haven’t signed anything with a non-compete clause so I believe there’s nothing to stop me doing that.

    I’m not really sure who to go to or where to start with this. Any help much appreciated.

    #1228985
    Paul – FS Concierge
    Keymaster
    • Total posts: 3,183

    Hi and welcome to Flying Solo!

    Your query really can’t be answered outside of the family law environment because now that you have separated, the Courts will rule on what is fair and what is not and what you think is fair may seem barely relevant.

    What you are thinking about doing may or may not be highly risky from a legal standpoint ie, the Court may rules that you deliberately did this or that to keep assets from your ex.

    From that point of view, it is very important to seek the advice of a family law lawyer before pursuing any strategy that may have future negative consequences for you..

    Without prejudice to the advice they may give, the chances are that you may be asked to have several business brokers put a value on the business to arrive at a dispassionate, market value.

    The mechanics of that is much the same as a real estate valuation except in business, a business like yours is normally valued on a multiple of net profits and averaged over a few years – so your final year of earnings will not count for “everything” if that is one of the things that you are afraid of.

    There are so many ways this thing can play out, many of which can get very messy, very quickly.

    Good luck with your decisions and with the outcome you are seeking.

    Cheers
    Paul

    #1229009
    Matt Dell
    Participant
    • Total posts: 6

    I agree with Paul – this is a matter for Family Law / Legal advice

    Just to fram your thinking I will say that the value of a ‘business’ is very little without guarantee of income
    Unless you have existing contracts and/or recurring revenue etc. then it would be worth very little

    Think of it like this – what would someone pay you (both) for the business?
    What is it worth to a competitor or external buyer?

    Whatever the answer is – which may be nothing – then that is the value that your Ex is legally and morally entitled to a share of I guess
    Good luck with it

    MATT DELL Agent / Owner Elders Insurance Ulladulla If you have questions, Elders Insurance Ulladulla is the answer! www.eldersinsurance.com.au/elders-insurance-ulladulla
    #1229010
    Margaret Donoghue
    Participant
    • Total posts: 2

    You really really really need to consult with an experienced Family Lawyer before you do anything!

    Even if you do what you are thinking of, the Family Law courts are likely to put a value on the business you have and attribute that as an asset you have received, particularly if you simply just set up under another business name.

    Not to mention the bad faith it would show for future negotiations either about property or anything else you may want or need to reach agreement over with your former wife.

    You are perfectly entitled to strongly state your case on the basis of the contributions you have made, but a court will also consider the direct and indirect contributions made by your wife; for example, did she work elsewhere and help to support the family with her earnings, or did she shoulder the majority of the house work and care for the family so that you could concentrate on the business?

    So go speak to an experienced family lawyer.

    #1229020
    Dave Gillen – FS Concierge
    Keymaster
    • Total posts: 2,560

    Hi @tryingsolo (love the name),

    A @mattdell has said, the business as a sellable entity might be worth less than you think. But rather than speculate, talk to a couple of brokers so you can have proof of it’s value (not just opinion).

    Once you get this proof in place around the valuation (i.e. her expectations lowered), then I would suggest paying more than it’s worth so she feels she has gotten a good deal.

    Legal advice would be a good idea though, because you never know if she’ll agree and then come back for more later.

    Dave
    P.S. You might also suggest valuing the business at the time of separation?

    Dave Gillen - Client Acquisition | Brisbane | (07) 3180 0288
    #1229022
    Matt Dell
    Participant
    • Total posts: 6

    Thanks @dave-fs-concierge
    I almost recommended a broker for a valuation but from experience they won’t do much for you unless you are actually looking to sell – or you pay for the service 😉

    MATT DELL Agent / Owner Elders Insurance Ulladulla If you have questions, Elders Insurance Ulladulla is the answer! www.eldersinsurance.com.au/elders-insurance-ulladulla
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