Massachusetts first established the fair value standard in divorce with Bernier v. Bernier—a case that has since become familiar to appraisers across the country for its ultimate holding that the value of a closely held corporation should not be “unfairly deflated” by a marketability discount, absent extraordinary circumstances such as an imminent sale or cash liquidation.

In a recent case, a wife tried to carve out an exception for her minority holding (24%) of highly restricted shares in a family-owned corporation. Although the business was not under any threat of sale, as a “practical matter,” the wife could not “sell, transfer, or pledge her shares”; nor could she convert them into cash.  These facts warranted her expert’s application of a 15% minority discount and 30% marketability discount, she argued

The facts of this case were different, the Massachusetts Court of Appeals agreed, but the Bernier principles still applied. That is, because the wife’s businesses were not about to be sold or converted to cash, “liquidity, a hallmark of the marketability discount, is of little consequence,” the court said, and no DLOM applied. Further, although Bernier did not squarely address the application of a minority discount, dictum “made clear that such a discount should not be applied absent extraordinary circumstances,” the court held. Read the complete digest of Caveny v.Caveney, 2012 Mass. App. LEXIS 32 (Jan. 12, 2012), in the current Business Valuation Update; the court’s opinion is posted at BVLaw.