NORWAY Trends and Developments Contributed by: Sicilie Tveøy, Thomas Alnæs, Ramborg Elvebakk and Karen Margrethe Bugge, Advokatfirmaet Hjort AS
words, the ex-spouse is entitled to a payment equal to half of what the company was worth at the cut-off date. • Liquidity problem when selling the business to pay the ex-spouse – Often the company’s value is tied up in illiquid assets or the going-concern value of the business. Cashing out half the value is prob - lematic. If the company has low liquidity or assets tied in equipment, the owner might sell shares to get funds to pay the ex-spouse, risking losing control of the company. This scenario is common: to satisfy the divorce settlement, a business owner might be forced to sell a portion of their equity (possibly to outside investors or even to the ex- spouse) or take on debt, which can undermine the business or their control of it. • Valuation problem – As Norwegians tend to own more and get richer, there is more value in busi - ness and more to discuss, and there is a trend that spouses do not agree to valuation – and therefore the court is asked to set the value of a business. Complexities in Valuing a Business When a marriage ends (by divorce or death), and the deceased has not entered into a marriage agreement, or written a will, one practical challenge is how to value a private business for the purpose of dividing assets. Valuing a start-up or private company is not straight - forward; there may be disagreements between the spouses or heirs on what the shares are worth. Nor - wegian law has procedures to handle this through a court valuation process. Either party can request the court to set the valuation. This is essentially a court- ordered appraisal – a special legal process where the court, after the parties have had the opportunity to give inputs, appoints experts and determines the fair market value of the asset after an oral court hearing. The idea is to find the price the shares would fetch in an open market sale, as of the cut-off date in divorce (or death). This process is expensive and elaborate. • It is conducted by the local court, and with the judge and paid expert judges. • Both sides typically hire their own lawyers and possibly valuation experts to argue for a higher or lower valuation.
• The court’s valuation is binding for the split, but can be appealed by either side, leading to a sec - ond valuation round in the court of appeal. • Legal disputes involving business valuations can be very expensive, as they typically require the involvement of multiple paid professionals. Each party may need to hire their own lawyers and expert witnesses, and the process may also involve expert judges or court-appointed experts – often totalling up to six professionals. These costs can escalate significantly, especially in cases involving complex or large company structures, where valu - ations are more challenging and require special - ised expertise. As a result, such proceedings can become prohibitively costly for the parties involved. The valuation will consider the company’s financial statements, assets, earnings and future prospects. If the owning spouse will keep the shares, sometimes adjustments like minority discount or illiquidity dis - count might come into play (eg, if the spouse is keep - ing a minority stake not easily sold). Also, latent tax liabilities are considered – for instance, if selling the business would incur taxes, the net value after tax might be used. Generally, the value shall not count personal “goodwill” of an owner as part of value, so if the company’s success has personally strong ties to the owner, that might reduce transferable value. If the value of the business is not established in advance – through a marriage agreement or will – determining what the spouse or heirs are entitled to can become a lengthy and expensive legal process. This is particularly problematic for small start-ups, where the company’s value may be uncertain or dif - ficult to assess. To avoid such disputes, Norwegian business owners are strongly advised to consider their personal circumstances when starting a business and to make clear arrangements, such as prenuptial agreements and wills. Setting a predetermined value or payout for a spouse or heirs can help to ensure that the company or surviving owners can settle obliga - tions efficiently and avoid contentious battles over the business’s true worth during difficult times.
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