Colorado court considers fair value standard in divorce

BVWireIssue #72-2
September 17, 2008

After 27 years of marriage, the Thornhills of Colorado divorced, negotiating a separation agreement that turned primarily on the disposition of the husband’s 70% interest in an oil and gas business.  The wife later repudiated the agreement—but the trial court ratified it anyway—finding its provisions fair and equitable, and the wife appealed.

The Colorado Court of Appeals ruled the agreement was unconscionable, largely because the wife lacked legal counsel during its negotiation and had limited understanding of its terms—including its lack of providing interest and security for a substantial 10-year payment by the husband.   Presumably, the wife also lacked her own valuation expert, because the court only mentions the husband’s expert, who valued his interest in the company at nearly $1.7 million—after the application of a 33% discount for lack of marketability.  The appellate court did not have to rule on the valuation determination, but just “because it may arise on remand,” it considered the wife’s argument that—by analogy to Colorado cases interpreting dissenting shareholder rights—marketability discounts should not apply in divorce cases, either.

The court examined precedent on both sides of the issue, ultimately concluding that divorce is not analogous to shareholder dissent.  The applicable marital dissolution statutes do not contain the same “fair value” language as the business corporation statutes, the court said.  Moreover, to preclude a trial court from applying marketability discounts in the appropriate divorce case “could unfairly penalize a party for ownership of shares that cannot be readily sold or liquidated.”  The conservative result (which the court took on its own initiative) suggests to some Colorado analysts that the panel has permitted the parties the option for further appeal to the state Supreme Court.

An abstract of In re Marriage of Thornhill (Aug. 21, 2008) will appear in the October Business Valuation Update, and a copy of the full-text court opinion is available to subscribers of BVLaw™.  For a current overview of U.S. court rulings, check out “The State of the Fair Value Standard in Divorce,” by John S. Stockdale Jr., Esq., available as a Free Download at

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