Property Settlement - Property Business Valuation

The case of Wilde & Wilde (2007) Fam CA 1044 has outlined 5 business methodologies in valuing a business for family law purposes.

First is the discounted cash flow method which is used to project the profitability of the business for up to ten years. So, the present valuation of the business includes that of the projected income for the next ten years including the interests and risks associated with the business. The projection also includes the terminal value of the business at the end of the 10 year period.

Second methodology is the Capitalisation of Future Maintainable Earnings.

This method is used in valuing a minority interest in a business or the right to receive dividends. This method is appropriate where the owner has no control or influence over the business, the income patterns of the business have been relatively consistent over the years and is expected to stay consistent in the future.

Third is the Value of Net Tangible Assets (Going Concern Business) methodology. This method is applicable where the capital value of the maintained assets does not exceed the net tangible assets used to generate profits. The business is earning but because it does not generate sufficient profits there is no goodwill.

Fourth methodology is the Notional Realization Assets which is used if the business will most likely not continue in the future. The value of the business will depend then on how assets will be realized through sale and liquidation.

Fifth is the Capitalization of Future Maintainable Dividends methodology. This is used in the case of minority stockholders who have no access to undistributed retained earnings but a pattern of dividends is already established.

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Alan Weiss

25th March, 2020

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