Written by Chris Walton, JDMinority interest discounts are a default move in private-company valuation. The owner of a non-controlling stake usually cannot force a sale, set distribution policy, or compel the company to act on their interest. The discount reflects that powerlessness in dollars. In valuation reports across divorce, gift and estate, and dissenting-shareholder contexts, a discount for lack of control is the standard treatment, and the fight is usually about magnitude rather than whether the discount applies at all.
California’s Court of Appeal recently reminded family law practitioners and their valuation experts that the discount is not automatic. In re Andary, 2025 Cal. App. Unpub. LEXIS 1967 (Cal. Ct. App. Apr. 1, 2025), affirmed a trial court’s refusal to apply a 20% minority discount to a 25% interest in a family-owned business divided equally among four owners. When the structure of ownership and the realistic scope of any future sale point toward a whole-business transaction rather than a minority-piece transaction, the discount loses its empirical foundation. The article below walks through the holding, what it tells valuation experts about defending or attacking discounts in family-controlled entities, and why the same reasoning has gravitational pull in adjacent practice areas — particularly trust and estate disputes where the IRS or the taxpayer’s appraiser is fighting over the size of a discount on a family-controlled interest.
The in-spouse held 25% of a business owned in equal shares by four family members. He argued for a 20% minority discount to reflect his lack of unilateral control. The trial court declined to apply the discount, and the Court of Appeal affirmed.
The court’s reasoning rested on three converging facts. The business was likely to be sold as a whole, not in 25% slices. The four family-member owners held equal stakes, with no demonstrated intrafamily conflict that would force a fractional sale or undermine cooperative governance. And no party had identified an intent to sell any minority piece independently of the others. Together, those facts placed the realistic exit scenario in the whole-business column rather than the minority-share column, and a discount predicated on the inability to sell a minority piece at proportional value did not fit the empirical picture.
This reasoning is consistent with a long line of California precedent that disfavors minority discounts in family-owned businesses where no market-based minority sale is contemplated. The doctrinal point is not that California prohibits minority discounts in dissolution. It is that the discount has to map to a realistic exit. Where the realistic exit is a whole-business sale, the proportional value is what the in-spouse is actually entitled to — discounting that interest as if it would trade in a hypothetical minority market overstates the powerlessness and understates the recovery.
The operational implication is that the DLOC analysis in a family-owned business case has to be defended on the facts, not asserted as a default. The realistic exit analysis is the foundation. An expert applying a meaningful DLOC should be able to articulate why a minority sale is the realistic transaction scenario rather than the textbook one. Evidence of intrafamily conflict, of a buy-sell agreement contemplating fractional transfers, of historical minority transactions in the family group, or of structural impediments to whole-business cooperation moves the analysis from theoretical to factual. Without those facts, the discount is exposed.
The ownership structure has to be analyzed on its own terms. Equal ownership among family members carries an implication the trial court in Andary credited — no single owner has unilateral control, but no single owner is unilaterally subordinated either. A 25% interest in a four-equal-owner family business is not the same minority position as a 25% interest in a 60-25-15 structure, and an expert who applies the same DLOC to both has not done the differentiation the court is now expecting.
The internal consistency of the report also matters more than it used to. If the valuation contemplates a whole-business sale as the realistic exit, the same expert applying a meaningful minority discount has internally inconsistent assumptions. Opposing counsel will press exactly that inconsistency, and the trial court is now positioned to reject the discount on that ground.
Andary is a divorce case, and most readers will have closed the tab by this point if they don’t practice family law. The reasoning is worth sticking around for, because it is the same reasoning the IRS is using — and increasingly winning on — in gift and estate tax discount fights involving family-controlled interests. The same minority-discount fight runs through dissenting-shareholder buyouts, where the discount question can shift the buyout price by seven figures. The doctrinal hook is different in each context — fair value standards in dissenting-shareholder cases, fair market value in gift and estate matters, equitable distribution in marital dissolution — but the empirical question the court is asking is increasingly the same. Is the realistic transaction a whole-business sale or a minority-piece sale, and does the discount fit?
For trust and estate attorneys advising founder clients with family-controlled interests, the implication is worth flagging at the planning stage. Aggressive discount positions on family-controlled minority interests are easier to defend when the underlying facts support a realistic minority-sale scenario — a buy-sell agreement permitting fractional transfers, documented intrafamily disputes, prior minority transactions at discounted prices. They are harder to defend when the family is cooperative, ownership is balanced, and the realistic exit is a whole-business event. The discount may still be defensible in the second scenario, but the analytical work required to defend it is meaningfully greater.
For valuation experts engaged in either context, the takeaway is the same. The DLOC analysis is now a fact-intensive exercise in defensible storytelling about realistic exit scenarios, not a default reduction the report can apply without explanation. The cases pushing back on default discounts in family-controlled entities are not new — Hokanson, Pourmoradi, and the broader California line predate Andary by years — but Andary gives practitioners a recent, citable application of the principle in a specific factual posture that is easy to analogize to.
A working checklist for valuation experts and the litigators they work with.
Andary also produced a second holding worth flagging for family law practitioners, narrower in audience reach than the discount holding but doctrinally clean. The trial court awarded the community a “rate of return” of $23,625 on the in-spouse’s undercompensation during the marriage, applying what the appellate court characterized as a “reverse Pereira” formula. The appellate court reversed.
The doctrinal problem was that the business was the in-spouse’s separate property, not a community asset. Pereira and Van Camp are apportionment frameworks for dividing community and separate interests in a separate-property business that has appreciated through the owner-spouse’s labor during the marriage — tools for allocating value increases between the community (which has a claim on labor-derived appreciation) and the separate estate (which retains the capital-appreciation component). The trial court’s application of a “reverse Pereira” rate-of-return concept to award the community a piece of the post-separation value increase ran into Family Code § 771(a), which provides that earnings and accumulations of a spouse from and after the date of separation are the separate property of that spouse.
The community’s interest in a separate-property business runs through the date of separation. Where the owner-spouse’s post-separation efforts continue to drive value increases and there is no community contribution after separation, those increases are separate property as a matter of statute, not subject to community claims under any apportionment formula. The trial court’s award was vacated on that ground. For family law practitioners, the cautionary point is that creative apportionment theories targeting post-separation value will not survive § 771(a) where the underlying business is separate property and there is no factual predicate for a continuing community contribution. Arguments that try to extend the community’s claim past the date of separation need a different doctrinal hook than rate-of-return reasoning grafted onto Pereira.
Most experienced California valuation experts working in family law already know the Hokanson line and treat the DLOC question in family-owned businesses as fact-intensive rather than default. If your expert delivers a report with explicit realistic-exit analysis, ownership-structure differentiation, and discount magnitude grounded in case-specific facts rather than generic study averages, you are already past the failure mode Andary documents. The article above is a checklist for cases where the family-owned-business posture is unfamiliar, the discount is being asserted or contested aggressively, or the litigator and expert have not worked together before. It is not a pitch for outside help on every dissolution involving a family business.
Andary does not announce new California law on minority discounts. What it gives practitioners is a recent, citable application of the principle that DLOC in a family-controlled business has to map to a realistic exit, not a textbook one.
For family law attorneys, the discount fight in a family-owned business case is now harder to win on the in-spouse side and easier to win on the out-spouse side than it was a year ago — but only where the facts actually support a whole-business exit scenario. For valuation experts, the analytical bar on defending a meaningful DLOC in this posture has moved up. For trust and estate attorneys advising founder clients with family-controlled interests, the same reasoning will surface in future gift and estate tax discount fights — the doctrinal hook is different, but the empirical question the IRS will press is the same one Andary answered.
The reverse Pereira reversal is narrower but clean: § 771(a) ends the community’s claim on a separate-property business at the date of separation, and apportionment theories that try to extend the claim past that date do not survive appellate review.
If you are litigating a California dissolution involving a family-owned business interest — or planning around one in the gift and estate context — happy to discuss how the realistic-exit analysis can be developed and documented to either support or defeat a minority discount.
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