Is the fair value standard dead in divorce?

Reports of the death of statutory fair value in marital dissolution cases may be premature, but in a recent BVWire™, we noted the latest decision from Colorado, In re Marriage of Thornhill, to decline to adopt the standard. Not only do state family courts still retain their broad discretion to value a business according to the principles of equity and the facts of the case—but the Colorado Supreme Court saw “no clear national trend suggesting that a per se rule against marketability discounts is the majority view when it comes to valuing ownership interests in closely held corporations in divorce proceedings.”  Although the court recognized the New Jersey Supreme Court’s decision in Brown v. Brown (2002), which extended the rule prohibiting discounts in shareholder dispute cases to divorce cases, it also cited several other decisions (in Oregon, Florida, and South Dakota) indicating that “most courts have left the decision of the appropriateness of marketability discounts in valuations within marital dissolutions proceedings to the trial court’s discretion.”

Witness the latest decision out of Indiana, in which the trial court applied a 25% minority discount and a 15% marketability discount to the wife’s 5% limited partnership interest in the family farming business. On review, the appellate court first noted the policy prohibiting discounts in statutory appraisal cases. It even observed that in this case, the wife was likely to sell her interest (back to her parents) “the day after divorce,” possibly at a premium value. Nevertheless, like the Colorado court, “we conclude that marketability discounts and minority interest discounts can be utilized by a trial court in dissolution proceedings when determining the value of ownership interests,” the court held, in Alexander v. Alexander, 2010 WL 2006427(Ind. App.)(May 20, 2010).

Where can you get all the latest on BV in divorce? Digests and full-text court decisions of the Alexander and Thornhill cases join the hundreds of valuation-specific cases at BVLaw™.  And take note: For a complete CLE update of legal and valuation issues, consider BVR/Morningstar’s 3rd Annual Summit on Business Valuation in Divorce on Sept. 13-14 in Chicago. Speakers include top experts, attorneys, and judges from around the country, including co-chairs Jay Fishman and Bill Morrison, Kevin Yeanoplos and Mark Dietrich, and more..