Appellate Court Rules on the Value of the Marital Business as to Personal Goodwill, Minority, Liquidity, and Marketability Discounts
The primary issue in this appeal was the value of Surgical Imaging Specialists Inc. (SIS), a subchapter S corporation that the parties formed in 2002. Stephan Fair, the husband, was the sole registered shareholder of SIS. Darlene Fair, the wife, was listed on all tax returns as an equal owner. The trial court awarded all community property interest to the husband and eliminated 25% of SIS’ goodwill as personal goodwill. On appeal, the husband contended that the trial court undervalued the personal goodwill discount and failed to apply a discount for lack of marketability. The husband also appealed the separate property award of an IRA account and a reimbursement to the wife for additional salary payments made by SIS to the husband. The court of appeal affirmed the trial court value of SIS, remanded the issue of IRA gains, and affirmed the reimbursement for additional salary payments.
No discounts in New Jersey shareholder buyout case
New Jersey is one of several states that allow discounts for lack of control and marketability in fair value situations if it is proven that the discounts are fair and equitable, but, in a recent case, the trial court disallowed the discounts—and an appellate court agreed.
BV News and Trends June 2022
A monthly roundup of key developments of interest to business valuation experts.
Estate and Gift: The Complete Valuation Package (A BVR Workshop)
Unwrap all things estate and gift in this engaging session with Marissa Turrell and Carla Glass. This presentation will assume a basic understanding of business valuation, of both operating companies and holding companies, and focus on specifics related to valuing ownership interests for estate and gift purposes. Some topics will focus on issues that arise only in valuation for gift and estate purposes, such as seminal court cases on the matter, Chapter 14, working with ...
Robertson v. Hyde Park
This case was a partnership dispute where the defendant partners tried to buy out the plaintiff partners. On appeal before the New Jersey Superior Court Appellate Division, the defendants argued that the plaintiffs’ dissociation was wrongful and damages should be assessed, discounts for lack of control and marketability should be applied to the value, and the partnership value should be reduced to account for partnership outstanding debts and other amounts. The plaintiffs argued that the trial court erred by relying on the defendants’ expert’s report and not their expert’s report, refusing to increase the value by personal loans taken by the defendant partners, and failing to find that the partnership overpaid management and accounting fees. The appellate court affirmed the trial court with one exception, whether the partnership agreement disassociated properly. On that count, the appellate court determined that the disassociation was appropriate.
New Jersey Appellate Court Affirms Valuation of Shopping Mall, Disallows Any Control or Marketability Discounts, Affirms Proper Dissociation by Plaintiffs
This case was a partnership dispute where the defendant partners tried to buy out the plaintiff partners. On appeal before the New Jersey Superior Court Appellate Division, the defendants argued that the plaintiffs’ dissociation was wrongful and damages should be assessed, discounts for lack of control and marketability should be applied to the value, and the partnership value should be reduced to account for partnership outstanding debts and other amounts. The plaintiffs argued that the trial court erred by relying on the defendants’ expert’s report and not their expert’s report, refusing to increase the value by personal loans taken by the defendant partners, and failing to find that the partnership overpaid management and accounting fees. The appellate court affirmed the trial court with one exception, whether the partnership agreement disassociated properly. On that count, the appellate court determined that the disassociation was appropriate.
Blockage Discounts: How Volume Can Impact Value
Join Pasquale Rafanelli for an exciting look into the complex topic of blockage. Learn what blockage is and how to apply it when valuing securities, stocks, and even artwork. Understand how blockage is different than a discount for lack of marketability. With real-world examples that are applicable to your practice, this event will help you build a defensible conclusion.
BV News and Trends March 2022
A monthly roundup of key developments of interest to business valuation experts.
No valuation adjustment for alleged acts of oppression
In a Connecticut case, four siblings were partners in a number of restaurant properties and one of the partners (who had a 25% interest) was ousted by the others.
AICPA offers free webcast on estate/gift valuations
A two-and-a half-hour webcast on estate and gift valuations is available free of charge from the AICPA.
New case affirms treatment of goodwill in Indiana divorces
In Indiana, enterprise goodwill is includable in the marital estate, but personal goodwill is not (see BVR’s Charting Goodwill map).
BVRPro adds to its ASA BV Review archive
Subscribers to the BVResearch Pro platform can access issues of Business Valuation Review going back to 1982, and the Fall 2021 issue has just been added to the archive.
Two cases on trapped-in gains tax—with opposite outcomes
In a California divorce case we recently covered, an appeals court disallowed a discount for possible future taxes because the taxes were neither immediate nor specific.
Why Pre-IPO Studies Are Unsound in Concept and in Practice
This article explains why pre–initial public offering (IPO) studies are not a valid basis for determining marketability discounts. They are unsound in concept because the pre-IPO transactions and the subsequent IPO are priced at materially different dates and because the IPO price is not knowable at the earlier date. They are unsound in practice for several reasons, such as selectivity—the data include only companies that subsequently become publicly traded—and the fact that any pre-IPO discount ...
Dispelling the ‘hired gun’ perception of testifying experts
A question often comes up: “How can two qualified and experienced business valuation experts analyze the same company and come up with widely disparate values?”
New Version of the NICE DLOM Method Now Freely Available
William Frazier (Weaver) has a new version of his nonmarketable investment company evaluation (NICE) method for estimating a discount for lack of marketability (DLOM). An Excel template for the revised version, aptly named NICE-R, is now available.
New Case Points Up Opportunity for Buy-Sell Valuations
A recent court case illustrates that many buy-sell agreements do not adequately address the issue of valuation when an owner exits the firm. This represents an opportunity for valuation experts to review clients’ buy-sell agreements to identify potential problems, which could mean recurring business for the practice.
Cain v. Cain
The Nebraska District Court in this case accepted the value of the wife’s expert testimony at trial as to the value of the husband’s 50% interest in his business. Both appraisers included DLOMs in determining value, and both appraisers utilized appropriate valuation methodologies. The difference in the two valuations is a matter of the difference in professional judgment.
The Nebraska District Court’s Determination of the Value of a Husband’s Business Is Affirmed—Appraisers Used Acceptable Valuation Methodology
The Nebraska District Court in this case accepted the value of the wife’s expert testimony at trial as to the value of the husband’s 50% interest in his business. Both appraisers included DLOMs in determining value, and both appraisers utilized appropriate valuation methodologies. The difference in the two valuations is a matter of the difference in professional judgment.
BV News and Trends January 2021
A monthly roundup of key developments of interest to business valuation experts.
Appeals court OKs one discount, KOs another in divorce matter
In a California divorce matter, the husband’s expert applied two discounts to the valuation of the wife’s one-half interest in his business: one discount for possible future taxes and one for a discount for lack of marketability (DLOM).
New case points up valuation perils in buy-sell agreements
From a valuation standpoint, the lack of a buy-sell agreement—or one with a valuation provision that’s poorly drafted—can result in costly litigation and a painful falling out between business partners and/or family members.
Updated ‘Stout Restricted Stock Study Companion Guide’ available
The most widely used restricted stock transaction database for providing empirical support for a discount for lack of marketability (DLOM) is the Stout Restricted Stock Study (formerly FMV Opinions).
Business Valuation Update Yearbook, 2022 Edition
January 2022 PDF (454 pages)
BVR (editor)
Business Valuation Resources, LLC
BV News and Trends December 2021
A monthly roundup of key developments of interest to business valuation experts.