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Real Estate Minority Interest Discounts in Divorce Cases

By Paul L. Feinstein

We are all familiar with the concept of minority interests in closely held businesses, but there is not that much litigation in divorce cases concerning real estate, in which a litigating party owns less than a 50% share. Often, the same valuation theories that apply to corporations apply to real estate interests. Moreover, a creative use of those theories can help your client greatly.

Everyone seems to have a different view of this notion. For example, in one case, both real estate experts did not realize that the husband in the case owned only half the building in question. Therefore, the experts valued the entire interest in fee simple. Obviously, an appraiser must first value the whole asset, and then value the partial interest. However, in that particular case, the judge struck both opinions because the experts valued the wrong interest. Ultimately, the parties had to come up with another appraiser and ended up stipulating to the value.

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