In a California divorce matter, the husband’s expert applied two discounts to the valuation of the wife’s one-half interest in his business: one discount for possible future taxes and one for a discount for lack of marketability (DLOM). The wife’s expert did not apply either of these discounts. On the DLOM, her expert contended that the buy-sell agreement created a market for the stock, and, therefore, no DLOM was appropriate. On the discount for possible future taxes, the wife’s expert did not apply it because he contended that the taxes were neither immediate nor specific. A third expert had been hired (from PricewaterhouseCoopers), who sided with the fair market value opinion of the husband’s expert. The trial court ruled in favor of the husband’s valuation, and the wife appealed. The appeals court upheld the DLOM, saying that it was supported by substantial evidence (using restricted stock studies) but concluded that the tax liability was erroneously accounted for and remanded the case back to the trial court to adjust the valuation accordingly.
The case is Harvey v. Harvey (In re Michael S.), 2021 Cal. App. Unpub. LEXIS 7867; 2021 WL 5934472, and the case digest and full opinion are available on the BVLaw platform.
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