A family business is typically a closely held corporation—a business which is not publicly traded and for which there is no open market. Where the interest was purchased during the marriage, its value will be subject to division in the divorce. The major question which presents itself, however, is how will the value be determined.
Determining Fair Value of a Business During a Divorce
Brown v. Brown, 348 N.J. Super. 466 (App. Div. 2002) determined that the governing standard of value to be applied is “fair value,” and not “fair market value.” Fair market value is the amount at which property would change hands between a willing seller and a willing buyer when neither is acting under compulsion and when both have reasonable knowledge of the relevant facts. Fair market value takes into consideration a discount for lack of marketability or liquidity which is a discount based on the inability to sell an ownership interest in a business. Fair market value also takes into consideration a minority interest discount which is a reduction in value due to the lack of control which can be exercised by an owner with only a minority interest.