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Divorce Cases Applying a Minority Discount
(Provided by National Legal Research Group, Inc.)

An overall majority of the reported cases continues to permit use of a minority discount when valuing a minority interest in a close corporation. See Crismon v. Crismon, 72 Ark. App. 116, 34 S.W.3d 763 (2000) (applying 12% discount in valuing husband’s 50% interest in partnership); Trost-Steffen v. Steffen, 772 N.E.2d 500 (Ind. Ct. App. 2002) (30% discount for minority status and lack of marketability); Rattee v. Rattee, 146 N.H. 44, 767 A.2d 415 (2001) (28.5%); Haymes v. Haymes, 298 A.D.2d 117, 748 N.Y.S.2d 542 (1st Dep’t 2002) (unspecified discount); Cerretani v. Cerretani, 289 A.D.2d 753, 734 N.Y.S.2d 324 (3d Dep’t 2001) (30%); Ellis v. Ellis, 235 A.D.2d 1002, 653 N.Y.S.2d 180 (3d Dep’t 1997) (making 25% minority discount); Priebe v. Priebe, 1996 SD 136, 556 N.W.2d 78 (S.D. 1996) (making 40% minority discount; good discussion of minority discounts generally).

It should be noted that none of these decisions absolutely requires use of a minority discount in all situations. In Verholek v. Verholek, 741 A.2d 792 (Pa. Super. Ct. 1999), the court approved a trial court decision not to apply a minority discount, based on the testimony of the wife’s expert, who testified that the valuation method he used (capitalization of earnings) was accurate without such a discount. Valuation depends above all upon the testimony of experts, and if an expert persuasively explains why no discount is required, the trial court will at least be permitted to accept that explanation. But the above-cited states apply minority discounts most of the time, and an expert who does not apply one should probably explain his reasoning with considerable persuasiveness and detail.

Note also that a minority discount applies only when the court determines the value of a business as an ongoing concern. When valuing a spouse’s share of the marketable tangible physical assets of the business, a discount is not appropriate. Wagner v. Dunetz, ___ A.D.2d ___, 749 N.Y.S.2d 545 (2d Dep’t 2002). Stated differently, if the tangible assets of the business can be sold individually for a total price greater than the value of the business as an ongoing concern, the higher value should control.

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National Legal Research Group, Inc.

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