Comparing Apples to Apples when Measuring Increase in Value

In Haentjens, a 2004 decision of the Pennsylvania Superior Court, the husband inherited a minority interest in a family business around the mid-point of his 20 year marriage. The family business was subequently sold prior to the parties’ separation.

In the equitable distribution proceeding, the wife’s expert measured the increase in value of the husband’s non-marital business interest by subtracting the discounted value of the husband’s minority interest at the time of his inheritance from the sales proceeds that the husband actually received when the entire company was sold. Husband objected because a minority discount was applied to his acquisition value but not to his sales proceeds.

Husband’s expert, by contrast, urged the court to discount the sales proceeds by subtracting the book value of Husband’s interest.

The trial court, rejecting both these approaches, instead valued Husband’s acquisition on a pretax basis without a minority discount, thereby placing that value on the same footing as the undiscounted sales proceeds. This value was subtracted from Husband’s pretax sales proceeds to measure the increase in value.

The Superior Court affirmed the trial court’s hybrid valuation technique, finding that the technique urged by the wife’s expert was fundamentally flawed and artificially inflated the appreciation in value.