IVS 105: Valuation Models Used in Family Law Business Valuations

When a business is valued in a family law dispute, the final number often attracts the most attention. However, the outcome depends heavily on how the valuation is calculated behind the scenes.

Valuation models play a crucial role in this process. They transform financial information, assumptions, and market data into a calculated estimate of value. If the model used is inappropriate or poorly constructed, the valuation can quickly become unreliable.

That is why the International Valuation Standards include IVS 105: Valuation Models, which sets clear expectations for how valuation models should be selected, tested, and documented.

For separating couples and their legal advisers, understanding IVS 105 helps explain why professional judgement, transparent calculations, and well-supported financial models are essential in family law business valuations.

What Is a Valuation Model?

A valuation model is a quantitative tool used to apply a valuation method. It takes inputs such as financial data, forecasts, discount rates, and market assumptions, and converts them into a calculated value.

For example, a valuation model may:

• Forecast future earnings

• Apply discount rates to estimate present value

• Calculate maintainable earnings

• Analyse comparable transactions

  
  

While valuation methods explain how value is determined, valuation models are the practical tools used to perform those calculations.

Importantly, IVS makes it clear that no automated model can replace professional judgement. A model can assist the process, but the valuer must always interpret and assess the results.

This is particularly important in family law disputes where business structures, income streams, and financial records may be complex.

Choosing the Right Valuation Model

IVS 105 requires that valuation models be fit for purpose. In other words, the model must be appropriate for the asset being valued, the scope of work, and the valuation method used.

Several characteristics determine whether a valuation model is suitable:

Accuracy

The model must function correctly and produce reliable results.

Completeness

It should capture the relevant financial features of the business or asset being valued.

Timeliness

The model must reflect market conditions at the valuation date.

Transparency

The model must be understandable, including its assumptions and limitations.

In family law matters, these factors are critical because both parties and the court must be able to understand how the valuation figure was produced.

Testing and Validating Valuation Models

IVS 105 also requires that valuation models be tested before they are relied upon.

The valuer must understand how the model works, assess whether it produces reasonable outputs, and identify any limitations or adjustments required.

If significant limitations exist and cannot be properly justified, the valuation may not comply with IVS standards.

Valuation models should also be regularly monitored and updated to ensure they remain accurate and relevant over time.

This is particularly important where business conditions change, financial performance varies, or new market information becomes available.

Documentation and Transparency

A key requirement of IVS 105 is proper documentation.

Valuers must document:

• Why the valuation model was selected

• The inputs and outputs used in the model

• Significant assumptions

• Any limitations in the model

• Quality control procedures applied to the analysis

  
  

This documentation ensures that the valuation process is transparent and defensible.

In family law proceedings, this level of transparency helps the court understand the reasoning behind the valuation and reduces the likelihood of disputes over methodology.

The Role of Forensic Accounting

In family law disputes, the choice and application of valuation models can significantly influence the outcome of a business valuation.

Forensic accountants analyse financial information, assess the reliability of financial data, and apply appropriate valuation models consistent with professional standards.

At DB Forensic, our team assists family lawyers and clients by:

• Selecting valuation models suitable for the specific business

• Testing assumptions and financial inputs

• Ensuring compliance with International Valuation Standards

• Producing clear and transparent expert reports for court proceedings

  
  

Our role is not simply to run financial calculations. It is to apply professional judgement, financial expertise, and forensic analysis to ensure the valuation is reliable and defensible.

Need Clarity on a Business Valuation?

Business valuations in family law matters can quickly become complex, particularly when financial models, assumptions, and disputed figures are involved.

Engaging a forensic accounting expert can help ensure that the valuation process is transparent, well supported, and compliant with professional standards.

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