843 S.E.2d 498
S.C.2020Background
- George and Patricia Clark divorced after a long marriage; dispute centered on the fair market value of Patricia’s 25% minority stake in the family business, Pure Country, Inc.
- Husband previously received 75% of Pure Country (found to be a nonmarital gift); Wife received 25% in 2009 under a stock agreement restricting transfers to the corporation, other shareholders, or immediate family.
- Competing valuation experts: Husband’s expert (Stoddard) applied both a marketability discount and a lack-of-control (minority) discount, concluding the 25% interest was worth $75,000; Wife’s expert (Hodge) valued the company as a whole at $1.8M and did not separately analyze the minority interest.
- Family court found Stoddard more credible, applied both discounts, and valued the 25% interest at $75,000; the Court of Appeals rejected the marketability discount (relying on Moore v. Moore), affirmed a lack-of-control discount but reduced it to 30%, valuing the 25% at $132,656.
- South Carolina Supreme Court granted certiorari to decide whether marketability and lack-of-control discounts may be applied; it held the applicability of such discounts is fact-specific, affirmed the family court’s use of both discounts here, adjusted the lack-of-control reduction to 30%, and (after applying the marketability discount) set the 25% share value at $86,226.
Issues
| Issue | Husband's Argument | Wife's Argument | Held |
|---|---|---|---|
| Whether a marketability (lack-of-liquidity) discount may be applied to Wife’s 25% interest | Marketability discount appropriate; both experts initially applied it and family court found Stoddard credible | Discount inappropriate because Husband will retain/receive the business and no sale is contemplated (Moore) | Marketability discounts are determined case-by-case; family court properly applied the discount here |
| Whether a lack-of-control (minority) discount may be applied | Minority discount proper because a hypothetical buyer would pay less for a noncontrolling 25% stake | Discount inappropriate because Husband will end up with 100% and the devaluing effect disappears | Lack-of-control discount is appropriate on the facts; court affirmed its application but adjusted the effective reduction to 30% (resulting valuation: $86,226) |
Key Cases Cited
- Moore v. Moore, 414 S.C. 490 (2015) (held marketability discounts are fact-dependent and refused one where owner would retain business)
- Dowling v. S.C. Tax Comm’n, 312 S.C. 194 (1993) (endorsed use of minority-interest discounts in family/familial contexts)
- Reid v. Reid, 280 S.C. 367 (Ct. App. 1984) (defines fair market value standard used in marital asset valuation)
- Fields v. Fields, 342 S.C. 182 (Ct. App. 2000) (limited-case where consolidation by other spouse affected minority discount analysis)
- Fausch v. Fausch, 697 N.W.2d 748 (S.D. 2005) (supports case-by-case approach to marketability discounts)