Written by Chris Walton, JDOne expert valued the company at $275,000. The other valued it at $3.6 million. Same roofing business. Same valuation date. A thirteenfold spread. The trial court split the difference at $1.5 million and then did something that gets valuation professionals’ attention: it applied a 20% discount for lack of marketability to a 100% interest. The Iowa Court of Appeals affirmed.
In re Marriage of Nelson (Iowa Ct. App. Feb. 19, 2025) is the counterpoint to every case that says DLOM doesn’t apply when the business isn’t being sold. In Iowa, it does — even on a controlling interest, even in a divorce where the owner is keeping the business. The court found that the discount was consistent with Iowa precedent recognizing that closely held businesses have no ready market, and that the illiquidity risk is real regardless of whether a sale is imminent.
For family law attorneys and valuation professionals, Nelson establishes that DLOM on controlling interests isn’t just a theoretical concept from valuation textbooks. It’s a court-approved discount that can reduce the value of the marital estate by hundreds of thousands of dollars. Whether you’re arguing for it or against it depends on which side of the table you’re sitting on — but either way, you need to understand when it applies and how to support or challenge it.
The Nelsons owned a roofing and storm-restoration business. They had allocated ownership 51% to the wife and 49% to the husband to qualify as a female-owned company, though both were involved in operations. The business’s value for equitable distribution turned on a single contested asset: the accounts receivable.
The wife’s expert used an income approach and valued the company at $251,000 to $275,000. A critical assumption drove the low number: the expert treated large portions of the company’s older accounts receivable as uncollectible. Storm-restoration businesses generate receivables with unusually long collection cycles — insurance claims, contractor disputes, and customer deductibles can stretch collections out for months or years. The wife’s expert looked at the aging and wrote off a substantial portion.
The husband’s expert used an asset approach and valued the business at $3.6 million. His critical assumption was the opposite: he treated the receivables as collectible at or near face value. Under an asset approach, the receivables are a tangible asset on the balance sheet. If you assume they’ll be collected, they add directly to the value. If you assume they won’t be, they’re worth little.
The trial court rejected both extremes. It awarded the business to the wife at a value of $1.5 million — above the wife’s expert’s figure, well below the husband’s, and within what the court considered the range of permissible evidence. Then it applied a 20% DLOM on top.
Marketability discounts are standard for minority interests in closely held businesses. The empirical support is well-established: restricted stock studies and pre-IPO studies consistently show that identical shares with transfer restrictions trade at discounts to freely tradeable shares. Nobody disputes that a 10% interest in a private company is worth less per share than a 10% interest in an otherwise identical public company.
The controversy starts when you apply DLOM to a controlling interest. If you own 100% of a company, you have total control. You can sell the company. You can liquidate it. You can take it public. You control the timing, structure, and terms of any exit. Why should that interest be discounted for lack of marketability?
The answer — and the answer the Nelson court implicitly accepted — is that control doesn’t equal liquidity. Owning 100% of a roofing company doesn’t mean you can convert that ownership to cash quickly or at low cost. Selling a closely held business takes time (typically 6 to 18 months to find a buyer, negotiate, and close). It costs money (broker fees, legal fees, due diligence expenses). The sale price is uncertain (the market for small private companies is thin and illiquid). And the proceeds may include non-cash terms — seller financing, earnouts, employment agreements — that reduce the cash-equivalent value below the headline number. These are real economic costs, and they exist regardless of the owner’s level of control.
Practitioners sometimes call this an “illiquidity discount” rather than a “marketability discount” to distinguish it from the minority-interest DLOM. The label matters less than the concept: the discount reflects the time, cost, and uncertainty of converting a private business interest to cash.
The appellate court affirmed the 20% DLOM, noting that it was “consistent with Iowa precedent that has affirmed discounting the valuation of a closely held business or its stock in a property division when there is no ready market.” The court also noted that the husband had no imminent plans to sell the business. The valuation, including the discount, was “within the range of permissible evidence” and didn’t produce an inequitable division.
Nelson wasn’t the first Iowa case to apply DLOM in a divorce. In In re Marriage of Baedke (Iowa Ct. App. Aug. 2024), the court affirmed a 10% DLOM on a garden center that was also part of a marital estate. Iowa’s emerging pattern: DLOM is available in divorce when the expert presents evidence of illiquidity, and the trial court has discretion to determine the appropriate percentage based on the specific facts.
Compare this with Louisiana’s approach in Fair v. Fair, where the court refused to apply DLOM because the business wasn’t being sold. The reasoning in Fair was equitable: discounting for a hypothetical sale that won’t happen shortchanges the non-retaining spouse. Iowa’s reasoning is economic: the illiquidity risk is real whether or not a sale is imminent, and the fair market value standard requires accounting for it. Same question, opposite answers, driven by different judicial philosophies about what a divorce valuation is measuring.
Set aside the DLOM question. The underlying valuation dispute in Nelson illustrates a problem that arises in any business with long-cycle receivables: the income approach and the asset approach can produce dramatically different values depending on how you treat the receivables.
Under an income approach, the focus is on the cash flows the business generates. If old receivables are unlikely to be collected, they don’t generate future cash flows and they shouldn’t drive the value. The wife’s expert’s low valuation reflected the economic reality that aged storm-restoration receivables — stuck in insurance disputes, customer deductibles, and contractor claims — may never convert to cash.
Under an asset approach, the focus is on the balance sheet. If the receivables are on the books at face value and the expert doesn’t adjust them for collectibility, they inflate the asset base. The husband’s expert’s $3.6 million valuation assumed that receivables were worth what the books said. For a storm-restoration company where collections can lag years, that assumption was aggressive enough that the court rejected it.
The practical lesson: in any business with long-cycle or contested receivables, the valuation expert must perform an aging analysis, assess collectibility on a line-item or cohort basis, and apply appropriate reserves. Neither face value (too high) nor a blanket write-off (too low) is defensible. The court in Nelson landed at $1.5 million — between the two experts — because neither extreme reflected the economic reality.
If you’re arguing for DLOM on a controlling interest, present evidence of the specific illiquidity risks the owner faces. How long would it take to sell this business? What would the brokerage and transaction costs be? Is there a ready market of buyers for this type of company in this geography? What percentage of small-business transactions close with seller financing or earnouts that reduce the cash-equivalent proceeds? What’s the uncertainty around the sale price given the business’s size, industry, and customer concentration? Quantifying these factors produces a defensible discount that isn’t just a number pulled from a restricted stock study designed for minority interests.
If you’re arguing against DLOM on a controlling interest, the strongest position depends on the jurisdiction. In Louisiana and states following the Fair v. Fair reasoning: the business isn’t being sold, so a discount for a hypothetical sale is inequitable. In Iowa and states following Nelson: challenge the evidence. Is the expert using minority-interest restricted stock studies to quantify a controlling-interest discount? That’s the wrong empirical basis. Is the discount accounting for the owner’s ability to control the timing and structure of any exit? A controlling owner’s illiquidity discount should be lower than a minority holder’s precisely because of that control. Push the expert on whether the discount rate in the DCF already reflects the illiquidity risk — if it does, a separate DLOM double-counts the same factor.
Most defensible: businesses in niche industries with few potential buyers, businesses in rural or limited geographies, businesses with customer concentration that makes them hard to sell, businesses with regulatory or licensing requirements that limit the buyer pool, and businesses where the owner’s participation is critical to operations (personal goodwill that reduces transferability). A roofing and storm-restoration company in Iowa checks several of these boxes.
Least defensible: businesses in active M&A markets with regular comparable transactions, businesses with strong recurring revenue and transferable customer relationships, businesses in major metropolitan areas with deep buyer pools, and businesses where the income approach already reflects illiquidity risk in the discount rate. If the buyer pool is deep and the business is readily transferable, the illiquidity risk is minimal and the discount should be small or zero.
In re Marriage of Nelson confirms that DLOM on controlling interests is not theoretical — it’s being applied by courts, at meaningful percentages, in real cases. A 20% discount on a $1.5 million business reduced the marital estate by $300,000. For family law attorneys: know your jurisdiction’s position on DLOM for controlling interests. In Iowa, it’s available with evidence. In Louisiana, it’s rejected when the business is retained. In most jurisdictions, the answer is somewhere in between. For valuation professionals: if you’re applying DLOM to a controlling interest, justify it with controlling-interest-specific evidence of illiquidity, not minority-interest restricted stock studies. And if you’re opposing a DLOM, look for double-counting in the discount rate and challenge the empirical basis. The percentage matters — and Nelson shows that courts will apply one when the evidence supports it.
If you need to determine whether a DLOM is appropriate for a controlling interest in a divorce valuation — or need to quantify illiquidity risk using the right empirical basis for the interest being valued — happy to discuss the approach. The empirical support for controlling-interest DLOM is different from what most practitioners are used to, and using the wrong data can sink the discount on cross.
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