Business Valuation Add-Backs in Australian Family Law

A practical guide for lawyers and accountants briefing a business valuer.

A practical guide for lawyers and accountants briefing a business valuer.

UPDATED JULY 2026

The term “add-back” is used in two different ways in family law matters. One is a legal concept concerning property that has been spent or dissipated. The other is a valuation adjustment used to estimate the maintainable earnings of a business.

Those concepts should be kept separate. They serve different purposes, require different evidence and are decided by different people. Failing to distinguish them can distort both the property balance sheet and the valuation brief.

KEY TAKEAWAY

Following the 2025 family law reforms, property that no longer exists is not inserted into the balance sheet as notional property. Valuers may still make earnings normalisations - often called valuation add-backs - when estimating the market value of an operating business.

Two meanings of "add-back"

Issue	Legal property-settlement context	Business valuation context
Purpose	Address the treatment of spent, dissipated or distributed property within the statutory property-settlement framework.	Adjust historical accounts to estimate sustainable earnings under normal commercial conditions.
Decision-maker	The Court, informed by legal submissions and evidence.	The independent valuer, applying the valuation brief, evidence and professional judgement.
Typical evidence	Bank records, disclosure, affidavits and evidence explaining the use and timing of funds.	Financial statements, general ledger, invoices, payroll, contracts and market benchmarks.
Output	A legal argument about contributions, current and future circumstances, and a just and equitable outcome.	A normalised earnings base used within the selected valuation methodology.

The legal position changed in 2025

The Family Law Act 1975 was amended with effect from 10 June 2025. Section 79 now directs the Court to identify existing legal and equitable rights and interests in property. In Shinohara & Shinohara [2025] FedCFamC1A 126, the Full Court confirmed that property which no longer exists is not placed into the balance sheet as notional property.

That does not mean past spending is irrelevant. Depending on the facts, it may still be considered through the statutory assessment of contributions or current and future circumstances. The legal characterisation and submissions remain matters for the parties’ lawyers, not the business valuer.

A valuation instruction should therefore avoid asking the valuer to decide whether a party has “wasted” assets or whether a legal adjustment should be made. The valuer’s role is to value the existing business interest and, where relevant, determine the normalised earnings of the business.

Valuation normalisations remain essential

Private business accounts often reflect owner-specific decisions rather than the cost structure a market participant would expect. A valuer may need to adjust historical results for personal expenditure, non-commercial related-party arrangements, one-off events and owner remuneration.

These adjustments are not punitive and they should not favour either party. Their purpose is to estimate the earnings that the business could reasonably maintain under normal commercial ownership.

The four tests for a proposed valuation adjustment

Recurrence. Did the item occur once, or does the pattern show that similar expenditure arises regularly? A different description each year does not necessarily make the cost non-recurring.
Business purpose. Who received the economic benefit, and was the cost reasonably required to generate or protect business revenue? Mixed-purpose expenditure should be apportioned where the evidence permits.
Market replacement cost. If an owner performs a genuine role, the correct analysis is usually the commercial cost of replacing that work – not automatically adding back the entire salary, superannuation and benefits.
Arm’s-length terms. Related-party rent, management fees, wages and finance charges should be tested against market conditions. This can produce a positive or negative adjustment.

Common categories in family law business valuations

Three short examples

Fact pattern	Valuation treatment	Separate legal issue
$18,000 of documented private travel is recorded in the business accounts.	Add back the private component if it is not required to maintain revenue.	Any argument about the spending between the parties is addressed separately by the lawyers.
The owner is paid $90,000 but performs a role that would cost $180,000 to replace.	Increase the employment cost to market, reducing maintainable earnings by $90,000.	The reason for the historical salary does not determine the market replacement cost.
A related entity charges rent below the market level.	Increase rent to a supported market amount, creating a negative normalisation.	Ownership and treatment of the property interest remain separate matters.

How to brief the single expert or jointly instructed valuer

Define the interest to be valued, the valuation date, the purpose and the basis of value.
Provide at least three years of financial statements, tax returns and detailed ledgers, together with current management accounts.
Use one schedule for proposed valuation normalisations and a separate schedule for alleged spending or dissipation issues.
State the evidence supporting each proposed adjustment and identify any disputed facts.
Where facts remain contested, provide agreed and competing assumptions and request alternative answers where appropriate.
Do not ask the valuer to determine witness credibility, legal liability or the appropriate property-settlement adjustment.

The Federal Circuit and Family Court of Australia’s prescribed experts conference brochure specifically contemplates joint statements of assumptions, including competing assumptions, and alternative expert answers. Used properly, that process allows the valuation effect of a disputed fact to be quantified without requiring the valuer to decide the fact.

A cleaner process produces a more useful report

The most effective valuation briefs separate law, fact and valuation judgement. Lawyers frame the statutory issues. Accountants help reconcile the financial evidence. The valuer determines how supported commercial adjustments affect maintainable earnings and value.

That separation improves independence, reduces double counting and gives the Court a clearer path through the evidence.

Independent valuation support for family law matters

Expert Business Valuations prepares business valuations and valuation analysis for single expert, jointly instructed and dispute-related matters, with scope and reporting tailored to the purpose of the engagement.

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About the author

Daniel Callegari is a Certified Business Valuer, Licensed Business Broker and Principal Valuer of Expert Business Valuations. He works with business owners, accountants, lawyers, investors and intermediaries across SME and lower mid-market valuation matters. His work focuses on maintainable earnings, risk, transferability and evidence-based valuation analysis appropriate to the purpose of each engagement.