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

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.

Ohio Appeals Court Approves Use of Fair Value Standard in Valuing Farm Entities

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

Tate v. Tate

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

Colclasure v. Colclasure

State Supreme Court finds trial court erred in valuing husband’s business interest based on buy-out agreement the parties ignored; on remand, valuation must meet statutory requirement of a fair and just division.

In re Marriage of Gelman

A medical partnership’s exclusive contract to provide anesthesiology services to a hospital is an intangible asset, but since buy-sell agreement limits wife’s interest to $1.00, the court finds she has no ownership interest in the business and the contrac ...

In re Marriage of Restaino

Court of Appeals reverses the trial court’s finding that pay-outs under a law firm dissolution agreement represented income to the husband rather than his equity share in a community asset, to which the wife could claim a portion.

In re Marriage of Kingery

In valuing the husband’s 25% interest in a law firm, the trial court erroneously accepted a valuation that included a “purchase acquisition cost” or “goodwill cost” derived from a buy-out of a former partner.

In re Marriage of Baker

Court of Appeals affirms finding that buy-sell agreement limits spouse’s interest in medical clinic to $1,000.

Wood v. Wood

Appellate court rejects calculation of value of closely held business under buy-sell agreement that did use proper valuation date or standard of value (FMV).

Garman v. Garman

Court rejects doctor’s claims that by departing from medical practice just before divorce, his $15,000 buy-sell payout limits practice value, crediting instead a net asset value, adjusted for routine quarterly bonuses.

Dawyot v. Catawba Capital Mgmt., Inc.

In buyout dispute, court sets aside third-party appraisal performed pursuant to redemption agreement; court says final appraisal report contains at least one “palpable error” related to normalization of earnings that had a significant effect on the valuation; appraiser did not testify at trial.

New case digests added to BVLaw

Hartley v. Hartley

Court of Appeals overturns trial court’s order limiting discovery of law firm records to production of buy-sell agreement, finding the applicable “fair value” standard requires production of all relevant pricing information in divorce.

Brooks v. Brooks

Fair market value standard requires court to consider more than just the appraised values of real estate held by the husband’s minority interest in LLCs; it requires consideration of marketability and minority discounts, plus transfer restrictions.

Mandell v. Mandell

Texas court holds unsigned buy-sell agreement controls value of husband’s medical practice, a privately held professional association, in divorce.

Garcia v. Garcia

Divorce court finds restrictive shareholder agreement not binding on valuation of medical practice, although question of discounts due to restrictions depends on particular facts of the cases.

Nonowner Spouse Signed Buy-Sell: Is She Bound by Its Value in Divorce?

Court finds that when a non-shareholder spouse signs a buy-sell agreement, she is bound by its value in divorce.

Inzer v. Inzer

Court finds that when a non-shareholder spouse signs a buy-sell agreement, she is bound by its value in divorce.

No Appraisers Needed Where Buy-Sell Agreement Specifies Board Determines FMV of Shares

The Stock Repurchase Agreement of Staffing Industry Analysts Inc. (SIA) required that, upon termination of employment, an employee shareholder would have to sell (and the company to buy) all the shares she then owned.

Marketability discount may be applied where there is no impending sale but is within court’s discretion

The valuation issues in this marital dissolution were whether a discount for lack of marketability should have been applied to husband’s minority interests in two medical-practice businesses, and whether a buy-sell provision in a third business was determinative of that business's fair market value.

Daly v. Yessne

The Stock Repurchase Agreement of Staffing Industry Analysts, Inc. (SIA), required that upon termination of employment, an employee shareholder would have to sell (and the company to buy) all the shares she then owned.

Fausch v. Fausch

The valuation issues in this marital dissolution were whether a discount for lack of marketability should have been applied to husband's minority interests in two medical-practice businesses, and whether a buy-sell provision in a third business was determ ...

Gary Raiczyk v. Ocean County Veterinary Hospital, et al.

The U.S. Court of Appeals affirmed the decision denying reformation of closing documents prepared and signed in connection with the sale of shares in a veterinary hospital.

Valuation Based on Pricing Formula in Buy-Sell Agreement Upheld

Husband was a part owner of Pingree & Watterworth PA, an orthodontic practice.

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