Valuation formulas – A buy-sell agreement goes to divorce court

Description

Abstract: Closely held businesses commonly rely on buy-sell agreements to facilitate liquidity and smooth ownership transitions. But the agreements also occasionally play a part in divorce proceedings. This article looks at one such case, in which a Missouri appellate court rejected a buy-sell agreement’s valuation formula as the basis for valuing the business in the divorce settlement. It shows why, depending on the jurisdiction, an enforceable buy-sell agreement should provide for an up-to-date appraisal. A sidebar lists the benefits of a properly structured buy-sell agreement.