Partnership Dispute Valuations: When to Instruct a Forensic Accountant

Partnership dispute valuations in contested buy-outs often come down to how the numbers were prepared — and by whom. A figure proposed by one side’s accountant rarely survives scrutiny when examined against the underlying records. What looks like a straightforward calculation of a departing partner’s share frequently unravels once partner drawings, undisclosed income, and normalisation adjustments are properly considered and examined.

This guide explains why partnership valuations are disputed, the main valuation methods used, and when solicitors should instruct a forensic accountant.

When Are Partnership Valuations Disputed

Partnership valuations are disputed because the parties have competing interests in the outcome, the underlying accounts may not reflect commercial reality, and valuation methodology involves judgment calls on which reasonable experts can differ. Where no written partnership agreement exists (a partnership at will) the absence of agreed valuation provisions makes disputes more likely.

Reasons I see disputed partnership valuations include: 

• Departing Partner Wants the Highest Defensible Figure: They may argue for a valuation method that maximises their share, challenge any discount for minority holdings, or dispute adjustments made to the earnings figure.
• Remaining Partners Wish to Minimise Payments: They may favour asset-based valuations over earnings-based approaches, argue for significant minority discounts, or seek to exclude goodwill from the calculation.
• Accounts Themselves Often the Problem: Partnership accounts in owner-managed businesses frequently include personal expenses, above-market salaries, or transactions between related parties that distort the true commercial picture. Without adjustment, these figures produce valuations that favour one side or the other.

How Are Partnership Interests Valued?

Partnership interests are typically valued using one of three methods: earnings basis, asset basis, or a hybrid approach. The appropriate method depends on the nature of the business, the size of the departing partner’s share, and the provisions of any partnership agreement. In most trading partnerships, an earnings-based valuation is the starting point.

Earnings basis values the partnership by reference to its maintainable profits (the profits it can be expected to generate on an ongoing basis). These profits are multiplied by an appropriate price/earnings multiple to produce a capital value. The departing partner’s share is then calculated as their proportion of that value, subject to any adjustments.

Asset basis values the partnership by reference to its net assets — typically used for property investment partnerships or where the asset backing exceeds the capitalised value of earnings. The departing partner receives their proportion of the net asset value.

Hybrid approaches combine elements of both, particularly where the partnership holds appreciating assets but it also generates trading profits.

In practice, the earnings basis dominates in professional and trading partnerships. The question then becomes what figure to use for maintainable earnings — and this is where most partnership disputes arise.

What Does a Forensic Accountant Examine in Partnership Disputes?

A forensic accountant instructed in a partnership dispute examines the partnership accounts, the underlying records, and the proposed valuation to identify errors, inconsistencies, or adjustments that have been applied incorrectly. The objective is to establish what the departing partner’s share is actually worth based on the evidence, not what either side claims it to be worth.

Before applying a valuation multiple, the earnings figure must be “normalised” to reflect the true commercial performance of the partnership. Common normalisation adjustments include:

• Reducing excessive partner drawings to market rate.
• Adding back one-off costs.
• Stripping out personal expenses charged to the business.
• Adjusting related-party transactions to arm’s length terms.

What often emerges is that the proposed normalisation favours whoever prepared it. A departing partner’s accountant may resist adjustments that reduce maintainable earnings. The remaining partners’ accountant may apply aggressive adjustments that understate the figure. A forensic accountant provides an independent view.

In some partnerships, income may have been understated for tax purposes or diverted through related entities. A forensic examination of bank records, supplier invoices, and customer contracts can identify discrepancies between reported and actual trading performance.

A departing partner holding less than 50% typically faces an argument that their share should be discounted to reflect lack of control. The appropriate discount — if any — depends on the specific rights attached to the holding and the circumstances of the departure. In quasi-partnership cases, courts can decline to apply a minority discount where the departing partner has been wrongly excluded.

Valuing goodwill in professional partnerships can also raise particular difficulties. The goodwill may be personal to individual partners rather than attached to the firm. In some regulated professions, restrictions on the sale of goodwill complicate the analysis further.

To discuss how forensic accounting can support your client’s partnership dispute, contact Rob Miller on 0161 243 0595.

When Should Solicitors Instruct a Forensic Accountant?

Instruct early. Instruct before the other side’s valuation becomes the baseline for negotiation. A forensic accountant can identify weaknesses in a proposed figure, advise on what records to request, and provide an independent valuation that will withstand challenge. In contested proceedings, forensic accounting evidence is often determinative.

Scenarios where you should reach out immediately include: 

• Buyout Figure Disputed: Where the remaining partners have proposed a figure and the departing partner considers it too low — or vice versa — forensic analysis can establish whether the figure is supportable.
• Accounts are Unreliable: Where the partnership accounts do not reflect commercial reality, or where there are concerns about undisclosed income or diverted profits, a forensic examination of the underlying records is essential.
• Expert Witness Evidence is Required: Where the partnership dispute proceeds to court or arbitration, the valuation will need to be supported by expert evidence. A forensic accountant can prepare an expert report, give oral evidence, and respond to the other side’s expert under cross-examination.
• High-Value Disputes: Even where both sides accept a buyout is owed, the amount at stake may justify forensic scrutiny. A small disagreement on the earnings multiple can mean a six-figure difference in the final valuation. This is often enough to justify the cost of proper analysis.

Partnership Dispute FAQs

Q: What is a partnership at will? A: A partnership at will exists where there is no written partnership agreement, or where a fixed-term agreement has expired. It can be dissolved by any partner giving notice at any time. The absence of agreed valuation provisions often makes disputes over the departing partner’s share more likely.

Q: How is a partnership dissolved? A: The precise legal route is a question for the instructing solicitor, but broadly, a partnership can come to an end by notice, by expiry of a fixed term, by mutual agreement, or by court order. Whatever the trigger, dissolution is what starts the requirement to value the departing partner’s share and settle their entitlement. This is where forensic accounting input becomes relevant.

Q: What records should be disclosed in a partnership dispute? A: Key records include: 

• Partnership accounts.
• Bank statements.
• Management accounts.
• Tax returns.
• Supplier and customer contracts.
• Related-party transaction documentation.
• Previous valuations or buyout discussions. 

A forensic accountant can advise on what to request through disclosure to support (or challenge) a proposed valuation.

Q: How do you calculate share value in a partnership? A: Partnership share value is typically calculated using an earnings basis (maintainable profits multiplied by an appropriate multiple) or an asset basis (net asset value). The departing partner’s percentage share is then applied to the total value, subject to any minority discount or adjustments under the partnership agreement.

Inquesta Forensic Accounting for Partnership Dispute Valuations

Partnership dispute valuations require detailed examination of the underlying evidence, not just the headline figures. Where the accounts are unreliable, the normalisation adjustments are contested, or the valuation methodology is disputed, forensic accounting provides the independent analysis that solicitors need to advise their clients and — if necessary — to support the case in court.

Rob Miller is a forensic accountant and ICAEW member with experience in partnership disputes, business valuations and expert witness work, among others. He works with solicitors across England and Wales to examine the evidence, challenge proposed valuations, and provide expert testimony where required.

If your client is involved in a partnership dispute, fill in the contact form to request a callback at a convenient time. Alternatively, email info@inquestaforensic.co.uk or call 0161 243 0595 to discuss how forensic accounting can support the case today.