March 2017: Value to the Owner Cuts Both Ways

Michigan Family Law Journal : TAX TRENDS AND DEVELOPMENTS Feature

by Joseph W. Cunningham, JD, CPA


It was recently asserted in a case that if a business could be sold for more than it is worth to the owner, then the higher sale value should be used for divorce settlement purposes.

This case involved a minority shareholder who had no authority to sell the business, and the shareholders holding a majority interest had no intention of selling the company.

As recently summarized this column (October 2016), the Michigan Court of Appeals has ruled in a number of cases that if a business providing personal services is worth more to the owner than the price at which it could be sold, the value for divorce purposes is value to the owner – sometimes called “holder’s interest value” – unless there is reason to believe the enterprise will be sold.

But what about the reverse situation – the sale value – that is, fair market value (FMV) – is higher than the value to the owner?

Premise of Value to Owner

If there is no intent to sell or discontinue a business or professional practice, it should be valued for divorce based on its intrinsic value to the owner on a going concern basis. The financial benefits from that value are what have been conferred on the family while intact and will be conferred solely on the owner post-divorce.

Support – Kowalesky, 148 Mich App 151 (1986) and several other Court of Appeals (COA) cases (see October 2016 Tax Trends column).

Logic – If there is no intent to sell, under what rationale should any value other than the value based on current – financial benefits provided by the business be used in a divorce settlement?

No other value is relevant to this family or, hence, to this divorce.

Value to Owner Cuts Both Ways

Value to Owner Higher than FMV –

Continued in PDF file below… “Value to the Owner Cuts Both Ways”
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