Divorce, Matrimonial Property: Assets & Shares of Private Companies – Are they Matrimonial property?

Assets and Shares of Private Companies: Are They Matrimonial Property?

A question often asked is whether the assets of a private company in which a party in divorce proceedings has acquired shares can be treated as matrimonial property. The short answer to
this question is no. Foss v Harbottle [1843] 67 ER 189 established that a company is an independent entity, separate from its shareholders. Consequently, the assets of the company are not ‘owned’ by its shareholders and therefore cannot be treated as matrimonial property.
However, what can be treated as matrimonial property are the shares themselves, and if a party’s shares in a company are to be treated as matrimonial property, the value of the shares must be properly determined. The value of private shares (as opposed to public shares) is not readily available in the public domain and has to be ascertained by examining
the company’s financial statements. So what should you do if your divorce client wants the court to treat his/her spouse’s shares in a company as matrimonial property?

1. Pleading: Your client’s position that his/her spouse’s shares in the company are matrimonial property must be specifically pleaded. This can be done at paragraph (h) “Division of other Matrimonial Property/Assets (including CPF monies)” of the “Relief Claimed” section of the Case Statement e-form, e.g. “I wish to claim 50% of the value of the Plaintiff’s/Defendant’s shares in ABC Pte Ltd”.
2. Discovery: If not already disclosed in the spouse’s Affidavit of Evidence-In-Chief, send a request to the spouse for the latest financial statements or Annual Return (AR) of the company filed with the Accounting and Corporate Regulatory Authority (ACRA). You can see on the company’s ACRA “business profile” the date of the most recent AR filed by the company.
3. In the AR, look for the “Total Assets” and “Total Liabilities” figures – usually under the section “Statement of Financial Position”. Determine the Net Asset Value (NAV) of the company by deducting the “Total Liabilities” figure from the “Total Assets” figure.
4. Next, divide the NAV of the company by the total number of issued shares to arrive at the NAV per share. The number of issued shares of the company can be found on the company’s ACRA business profile. The NAV per share is the value of each share of the company.
5. Finally, multiply the NAV per share by the total number of shares held by the spouse to arrive at the total value of the spouse’s shares. This is the widely accepted method of determining the value of shares in a company. The operating profit and loss figures are irrelevant. The Inland Revenue Authority of Singapore (IRAS) adopts this method of determining the value of private shares for the purpose of
   computing the Stamp Duty payable upon their sale: see https://www.iras.gov.sg/taxes/stamp-duty/for-shares/buying-or-acquiring-shares. In OS 49348 Rohaini Binte Osman v Mohamed Roslan Bin Ja’afar (unreported) the Syariah Court accepted the wife’s submission to use the same (NAV) method for valuing the husband’s shares in a travel agency. The Syariah Court rejected the husband’s submission that it should only look at the company’s net operating profit per issued share – which in this case was a negative figure. The Syariah Court eventually awarded the wife the sum of $33,000.00 or about 32.5% of the total value of the husband’s shares in the travel agency as matrimonial property. The relevant facts are as follows:

• Total number of shares held by the husband: 100,000 shares (A)
• Total assets of the company: $136,355.00 (B)
• Total liabilities of the company: $34,728.00 (C)
• NAV of the company (B)-(C): $101,627.00 (D)
• Total number of issued shares: 100,000 shares (E)
• NAV per share (D)/(E): $1.01627 (F)
• Total value of the husband’s shares (F)x(A): $101,627.00