Three different court rulings on the use of discounts in the divorce context

Valuation professionals know that case law matters. Every month, BVLaw analyzes the most noteworthy court decisions dealing with valuation and damages issues. Subscribers should check out digests of three recent divorce rulings different state courts issued. All the cases dealt with the issue of whether it was appropriate to discount the owner-spouse’s interest in a closely held business. 

The various state courts reached different conclusions, a fact that illustrates how critical it is for experts to know the law of the jurisdiction in which they practice.

One common theme emerges from the different rulings. Trial courts have great discretion in deciding whether to apply discounts and are often more guided by a notion of equity than valuation principles.

Telfer v. Telfer, 2018 Tenn. App. LEXIS 120 (March 5, 2018)

The Tennessee Court of Appeals finds that the trial court did not err when it applied a marketability discount in valuing the partial interests in businesses representing the wife’s separate property; the use of DLOM is within the trial court’s discretion and depends on facts of the case, the appeals court says.

Tate v. Tate, 2018 Ohio App. LEXIS 1340 (March 29, 2018)

The Ohio Court of Appeals upholds the valuation of a minority interest in farm entities based on the fair value standard of value. The court notes the prevailing expert specifically referenced buy-sell agreements that did not contemplate the use of discounts in valuing an exiting member’s partial interest.

Cobane v. Cobane, 2018 Ky. App. LEXIS 107 (March 23, 2018)

The Kentucky Court of Appeals says that, in valuing the owner-spouse’s minority interest in an LLC, the trial court “would have been well within its discretion to apply a minority discount”; however, it was not error for the trial court to reject a discount based on certain questionable actions related to the owner’s interest.