Minority Discount - Divorce Encyclopedia

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Term Definition Minority Discount - applied sometimes to valuing a private business and reflecting the lack of control of a minority shareholder or owner.

Application in Divorce As it applies to divorce, the calculation of a marketability discount, which is a similar reduction based on the fact that a corporation’s stock is difficult to sell.

The fundamental argument for using a minority interest, that is, the fair market value. Some courts believe this actual disadvantage is small, particularly when the business is owned and operated by one spouse’s family.

Minority discount, which reflects an party holding it is unable to control the management and its directors, if any. Minority ownership often happens in private or closely held corporations, and these entities must be appraised by various experts who use different methods to place a value on the business for purposes of marital distribution.

In calculating a majority interest.

In making determining a minority stockholders, such as buy and sell agreements that establish the terms and condition for the withdrawal of parties in the business.

Businesses valued at the beginning and the end of a marriage must use the same minority discount. This ensures an apples-and-apples comparison when measuring the growth of the company.

In calculating minority discount.

In a spouse who is not an active participant in the business, as in the case where a husband gives a wife a part of a business he established before marriage.

"Placing a corporation is an art, not a science," said one Illinois court of appeals decision.