Opinion ID: 1057295
Heading Depth: 1
Heading Rank: 2

Heading: Adjustments to Valuation

Text: ¶ 48. Husband's first argument in this category concerns the necessity of applying a minority discount to the valuation of husband's interest in the Landrum partnership. A minority discount reflects the conclusion that a party's ownership interest in an economic entity is worth less when the party does not exercise control over the entity. ¶ 49. In his second reconsideration motion, husband requested that the court reduce the value of his interest in the Landrum partnership because he owned only a one-third interest in that partnership. The court rejected husband's proposed minority discount, reasoning that a discount would be inappropriate because [t]here is no evidence that the sale of [husband's] one-third interest in Landrum is in any way possible. The court emphasized that husband is the person primarily in control of the only tenant and that the tenant... is making money and providing him with a substantial income. ¶ 50. Husband relies on two cases in arguing that a minority discount was required in this case. In Kasser v. Kasser, 2006 VT 2, 179 Vt. 259, 895 A.2d 134, the wife appealed the family court's decision to apply a minority discount to the valuation of shares of the husband's stock in a closely held company. We concluded that the court's application of a discount was within the range of evidence presented at trial. 2006 VT 2, ¶ 27, 179 Vt. 259, 895 A.2d 134. We found significant the difficulty inherent in establishing the value of closely held stock and concluded that, in the face of conflicting evidence, the court's application was within its discretion. Id. ¶ 28. ¶ 51. The second case, Goodrich v. Goodrich, 158 Vt. 587, 613 A.2d 203 (1992), involved stock in which the wife held only a small minority interest in a family corporation. The trial court applied a minority discount, which we found to be within the range of its discretion. Id. at 592, 613 A.2d at 206. We based our assessment on several factors, including the facts that: (1) the wife held only a small percentage of outstanding stock; (2) she was unable to affect the management of the company; and (3) her interests were not readily marketable and could not convey a controlling interest in the corporation. Id. at 591-92, 613 A.2d at 205-06. ¶ 52. Neither of these decisions requires the use of a minority discount in this case; in both, the trial court accepted expert testimony supporting a minority discount, and we affirmed under the abuse-of-discretion standard of review. The family court in this case exercised its discretion and gave a credible reason why it refused a minority discount. The primary purpose of the Landrum partnership was to provide income to the three brothers, and the valuation of the partnership was based on the capitalization of that income. While husband did not have a controlling interest in the Landrum partnership, he was certainly the most important of the three equal partners because he had effective control of the corporate tenant from which the income was derived. There was no evidence that any interest would be disposed of or that the partnership would cease to be the way the family derived income from Lane Press. Reducing the value of the partnership interest, while husband received full income from the partnership based on full valuation, would be unfair to wife. See Brown v. Brown, 348 N.J.Super. 466, 792 A.2d 463, 476-77 (App.Div.2002) (reasoning that minority discount can be applied only in exceptional circumstances; it would be inequitable for one spouse to keep the minority property interest, with the value discounted, while minimizing the property distribution to the other spouse). We conclude that the decision to disallow the minority discount in this case was within the family court's discretion. ¶ 53. Next, husband argues that the court erred because it failed to adjust the value of virtually all of the property by the tax liabilities that would accrue when the properties were sold to comply with the property distribution. Alternatively, husband sought that his payment of taxes be considered in determining the amount of the property distribution to wife. For most of the major items of marital property, husband was awarded the property but was required to pay wife her half of the value in cash. He argues that he would have to sell much of the property to comply with the decree and would have to pay taxes on the sale. Thus, he argues that wife should have to pay half of the taxes necessitated by the sale. The court reasoned that such consideration was inappropriate because: [t]here is no evidence that any property is for sale or is likely to be sold and that consequently the court had no basis on which to reduce the value of the property by the amount of taxes which may never be incurred. ¶ 54. We have clearly stated that the tax status of assets in the hands of one of the parties should not affect their fair market valuation, unless the decree necessitates their sale. Johnson v. Johnson, 158 Vt. 160, 165, 605 A.2d 857, 860 (1992). The record before us does not demonstrate that husband will have to sell any property to comply with the property division mandated in the divorce decree. Any other consideration of potential taxation would be purely speculative, and [i]ncluding vague and theoretical transactional tax consequences as routine factors in determining fair market value would add unnecessary complexity to an evidentiary problem that is already difficult, especially where the assets to be valued are closely held business interests. Id. ¶ 55. Husband argues that Johnson and later cases established an alternative method of considering tax liability and that the court erroneously failed to consider it. In Johnson, we quoted from a decision in which the Maryland Court of Special Appeals reasoned that potential income taxes `may be another factor to consider in establishing the amount and method of payment of any monetary award.' Id. (quoting Rosenberg v. Rosenberg, 64 Md. App. 487, 497 A.2d 485, 503 (Ct. Spec.App.1985)). We affirmed an award in Cabot v. Cabot where the court considered potential income taxes in fashioning its property award. 166 Vt. 485, 496-97, 697 A.2d 644, 652 (1997). We noted there that such treatment was particularly appropriate where one spouse retains the marital property and pays off the other spouse's share in cash. Id. at 496, 697 A.2d at 651. Similarly, in Hayden v. Hayden we affirmed an award that considered the cost of a real estate sales commission, while reiterating the holding of Johnson that potential tax or commission costs cannot affect the value of the marital assets. 2003 VT 97, ¶ 16, 176 Vt. 52, 838 A.2d 59. ¶ 56. Although husband argued for flexibility in the property award, his specific request was that the tax liability for the sale of each asset be computed and wife's award be reduced to reflect that amount. Thus, the relief he requested was indistinguishable from revaluing the assets. While he has suggested generally that one or more of the assets would have to be sold, he was unspecific in that assertion. It would be inappropriate to consider the tax liability on a sale of assets if no asset is to be sold and husband is to accrue no tax liability. Thus, the family court must have discretion in considering potential tax liability. While husband argues that the court failed to exercise its discretion, we read the court's decision differentlythat is, that the court was unconvinced that there would be any tax liability and declined to change the property award for this purpose. We find no error in the court's ruling.