New Tennessee law streamlines DLOM use in divorce valuation

When and whether to apply a discount for marketability in divorce valuations has been an open question in Tennessee, owing to some confusing court rulings. However, a recent amendment to the Tennessee Code seeks to provide clarity to valuators handling divorce cases in this jurisdiction.

The new law, which the governor signed at the beginning of May 2017, became effective July 1, 2017. It provides that, for purposes of achieving an equitable division of marital assets, the court, in determining the value of an interest in a closely held business, may consider “valuation methods typically used with regard to such assets without regard to whether the sale of the asset is reasonably foreseeable.” The considerations “could include, but would not be limited to” DLOM as well as a discount for lack of control and a control premium

Valuators familiar with Tennessee case law will immediately understand the provision’s reference to the foreseeability of the sale of an asset. Lawmakers were aiming to correct the Tennessee Court of Appeals 2007 Bertuca ruling (adopted in subsequent court decisions) that makes the use of DLOM contingent on the owner-spouse’s intent to sell his or her interest in the business in the foreseeable future, rather than the nature of ownership interest.

To find out more about the new law and prior DLOM use in Tennessee, click here.