Legal Memorandum: Stock Valuation for a Divorce Action in TN

Issue: Under Tennessee law, how is stock valued for purposes of a divorce action?

           Valuation is an issue of fact.  Smith v. Smith, 912 S.W.2d at 157 (Tenn. Ct. App. 1995).  On appeal, the appellate court is to assume that the trial court’s method of valuating a particular asset is correct, especially when the trial court resolved a conflict in testimony regarding valuation.  Id.  In Tennessee, the choice of the method for valuing a corporation varies from one corporation to another because it depends on the unique circumstances of the corporation.  Wright v. Quillen, 909 S.W.2d 804, 810 (Tenn. Ct. App. 1995) (quoting Wallace v. Wallace, 733 S.W.2d 102, 107 (Tenn. Ct. App. 1987)).  Selling price of comparable stocks is a reliable and accurate factor in valuing the corporation.  Id. at 810.  Valuing a corporation based on value of assets, fair market value, and capitalization of income are all proper methods.  Hazard, 833 S.W.2d at 914.  The trial court properly determines value by relying on one of the accepted methods rather than a buy-sell agreement.  Indeed, in Erwin v. Erwin, No. 87-315-II, (Tenn. Ct. App. March 25, 1988), the Court of Appeals affirmed the trial court’s finding that the present value of the husband’s interest in his company was $175,000, which was much greater than the $30,000 value stated in the buy-sell agreement in that case.  Id.  The Erwin court noted that the value of the husband’s interest in the company was “somewhat greater than the agreed value and somewhat less than its true value.”  Id.  In fact, the husband ultimately would […]