When non-owning spouses sign a buy-sell, are they bound by value in divorce?

Yes, according the Tennessee Court of Appeals in Inzer v. Inzer, 2009 WL 2263818 (July 28, 2009). Although its decision is non-binding on other states, to resolve the issue of first impression, the court looked to the current majority view (adopted in Tennessee), which holds “the value established in the buy-sell agreement of a closely held corporation, not signed by the non-shareholder spouse, is not binding on the non-shareholder spouse but is considered, along with other factors, in valuing the interest of the shareholder spouse” (emphasis by the court). Accordingly, the application of the majority rule depends on whether the non-shareholder spouse consented to the terms of a buy-sell.

In this case, the wife signed a formal acknowledgment of the husband’s franchise operating agreement, including its restrictive repurchase provisions (book value, depreciated assets, no goodwill, etc.). Although it was difficult to reconcile how the husband could earn upwards of $150,000 per year from an entity interest that the buy-sell agreement priced at only $33,000, the court nevertheless found that because the wife signed off on it, the buy-sell bound the trial court’s determination of value.

A complete abstract of the court’s decision will appear in the October BVUpdate, and the full-text of the court’s opinion will be available at BVLaw™.

Hear more on the current, critical issues in divorce. The effect of a buy-sell, the impact of the current economy, what lawyers expect and judges demand from BV experts—these and more will be covered by the BVR/NACVA/ASA 2nd Advanced Summit on Business Valuation in Divorce. A preeminent lineup of top BV experts, judges, and lawyers will present the best standards of BV divorce practice next Thursday and Friday Sept. 24-25 in Chicago.