Written by Chris Walton, JDHere’s the argument you’ll hear in every divorce involving a closely held business: the spouse keeping the company says the value should be discounted for lack of marketability because there’s no ready market for the shares. The other spouse says the business isn’t being sold — it’s being retained — so a discount for a hypothetical sale that will never happen artificially depresses the value and shortchanges the non-retaining spouse.
The Louisiana Court of Appeals sided with the second argument in Fair v. Fair (2022 La. App. 1 Cir.), refusing to apply any discount for lack of marketability to a closely held business that one spouse was keeping in the divorce. The husband’s expert proposed a 25% DLOM and a 10% discount for lack of control. The trial court applied neither. The appellate court affirmed. The reasoning: if the business is not being sold, the marketability discount has no economic basis.
For family law attorneys, this holding intersects with a question that surfaces in virtually every case where a business is being divided: does the standard of value require you to assume a hypothetical sale, or does it value the asset as retained? The answer determines whether DLOM applies — and in Louisiana, after Fair, the answer is increasingly clear.
Surgical Imaging Specialists Inc. (SIS) was a subchapter S corporation that sold GE surgical medical equipment. Stephan Fair, the husband, was the sole registered shareholder. Darlene Fair, the wife, was listed as an equal owner on all tax returns and received the same salary and distributions as her husband each year. The couple formed SIS together in 2002.
SIS’s business model was straightforward: it operated as a commissioned distributor for GE. Each sale was a transaction between GE and the end customer; SIS received a commission. Critically, the distributor relationship with GE was governed by a contract that renewed annually. SIS had no long-term contract guaranteeing its revenue stream. If GE chose not to renew, the business’s primary revenue source would disappear.
That structural vulnerability is relevant to every valuation issue in the case — enterprise value, goodwill, and the appropriateness of discounts all depend on how durable the business’s cash flows are. A business that can be shut down by a supplier’s annual renewal decision is different from a business with long-term contracts, diversified revenue, and customer relationships that survive any single vendor relationship.
Before reaching the DLOM question, the trial court addressed personal goodwill. Under Louisiana community property law, enterprise goodwill (value attributable to the business itself) is a community asset subject to division. Personal goodwill (value attributable to an individual’s reputation, skill, and relationships) is not.
The trial court excluded 25% of SIS’s goodwill as personal to the husband. The basis: Stephan Fair’s individual relationships with referring physicians and his personal reputation in the surgical equipment market were the primary drivers of SIS’s revenue. Without him, the business’s value would diminish. That 25% exclusion reduced the community property value before any discount questions arose.
For practitioners, the personal goodwill issue in Fair is less developed than the framework we see in cases like McLelland v. Paxton (where the Washington Court of Appeals articulated a six-factor test for distinguishing entity from personal goodwill). But the principle is the same: in a business where one individual’s personal relationships drive the revenue, a portion of the goodwill follows the person, not the entity. The 25% allocation in Fair is on the low end — in a single-distributor, single-relationship business like SIS, a reasonable argument could be made for a much higher personal goodwill exclusion.
This is the holding that makes Fair worth reading. The husband’s expert applied a 25% DLOM to reduce the value of the wife’s interest, arguing that SIS shares had no ready market and would be difficult to sell. He also applied a 10% discount for lack of control, characterizing the wife’s 50% interest as effectively a minority interest because she could not unilaterally access the business’s assets.
The trial court rejected both discounts. The appellate court affirmed, citing Cannon v. Bertrand, a Louisiana Supreme Court case that had addressed the same logic. The reasoning was direct: SIS was not being sold. Stephan was keeping the business. The divorce decree awarded him all community property interest in SIS. Under those circumstances, applying a marketability discount would reduce the value of an asset based on a hypothetical sale that nobody contemplated and nobody would execute.
The court’s logic cuts to a tension that runs through DLOM jurisprudence nationwide. Fair market value — the standard used in most divorce valuations — is defined by reference to a hypothetical transaction between a willing buyer and a willing seller. That definition implies a sale. But in divorce, the business typically isn’t sold. One spouse buys out the other’s interest. If the standard assumes a sale that won’t happen, and the discount accounts for the difficulty of a sale that won’t happen, the non-retaining spouse receives less than her proportional interest in the community asset for no economic reason.
The BVR commentary on Fair captured the paradox: how can a court use the fair market value standard (which assumes a hypothetical sale) and simultaneously refuse to apply discounts that arise from the hypothetical sale? The answer in Louisiana is practical rather than theoretical: the court is more concerned with equitable division than with methodological consistency. A DLOM that reduces the non-retaining spouse’s share produces an inequitable result — the retaining spouse gets the business at a discount that exists only because of a sale that will never occur.
Louisiana is not alone in this reasoning, but the approach is far from universal. The landscape on DLOM in divorce valuations is genuinely fractured:
Jurisdictions that reject or limit DLOM in divorce: Louisiana (Fair, Cannon v. Bertrand), South Carolina (Moore v. Moore, 2015 — no legitimate reason for a marketability discount when one spouse retains the business), Massachusetts (some appellate decisions refusing DLOM when no sale is contemplated), and Alabama (Grelier v. Grelier, 2009 — using fair value rather than fair market value to avoid artificial reduction).
Jurisdictions that allow DLOM in divorce: Tennessee (Telfer v. Telfer, 2018 — upheld trial court’s acceptance of a marketability discount), Iowa (In re Marriage of Nelson, 2025 — affirmed a 20% DLOM on a roofing business), and several states that follow a strict fair market value standard and treat DLOM as inherent in the definition.
Jurisdictions that use fair value instead of fair market value: Some states sidestep the DLOM question entirely by using “fair value” as the standard in divorce, which generally does not permit minority or marketability discounts. This mirrors the approach in Delaware statutory appraisal cases and avoids the paradox of discounting for a sale that isn’t happening.
For family law attorneys: know your jurisdiction’s standard of value and its DLOM precedent before the appraiser begins work. If you’re in a jurisdiction that follows the Fair/Cannon line — no DLOM when the business is being retained — make sure your expert doesn’t apply one. If you’re in a jurisdiction that allows DLOM even in a retention scenario, make sure the expert’s discount is supported by the specific facts of the case, not by generic restricted stock studies that measure a different kind of illiquidity.
The practical framework that emerges from Fair and its sister cases:
DLOM is most defensible when: the business is actually being sold as part of the divorce (both spouses are exiting), the court uses a strict fair market value standard that requires the hypothetical-sale assumption, or the jurisdiction has precedent explicitly allowing DLOM in retention scenarios. Even then, the discount should reflect the specific marketability characteristics of the subject business — not a generic percentage pulled from restricted stock or pre-IPO studies.
DLOM is least defensible when: one spouse is retaining the business (no sale is occurring or contemplated), the jurisdiction follows the Fair/Cannon reasoning or uses a fair value standard, or the business is being valued at the enterprise level (100% interest) where the retaining spouse captures all control and marketability attributes. Applying a DLOM in these circumstances transfers value from the non-retaining spouse to the retaining spouse for no economic reason.
The year-to-year contract question: SIS’s dependence on an annually renewable GE distributor contract raises a separate issue that the Fair court didn’t explore deeply but that practitioners should flag. If the business’s revenue depends on a single vendor relationship that can be terminated annually, the going-concern value already reflects that fragility through the projection risk and the discount rate. Applying a DLOM on top of that risk may double-count the same vulnerability. Make sure the appraiser isn’t discounting for the same risk in two places.
Fair v. Fair answers the question every family law attorney encounters in a business valuation divorce: if the spouse is keeping the business, does a marketability discount apply? In Louisiana, after Fair and Cannon v. Bertrand, the answer is no. The reasoning is practical: a discount based on a hypothetical sale that isn’t happening shortchanges the non-retaining spouse. Other jurisdictions are split. But the trend toward refusing DLOM in retention scenarios is gaining ground, and the underlying logic — don’t discount for a sale that won’t occur — is hard to argue against on equitable grounds.
For the spouse keeping the business: don’t assume DLOM is automatic. For the spouse being bought out: challenge DLOM early and cite the jurisdiction-specific precedent. And for the appraiser: know whether the court expects a hypothetical-sale value or a retention value before you build the model. The discount question is a legal question first and a valuation question second.
If you’re handling a divorce involving a closely held business and need to determine whether DLOM is appropriate under your jurisdiction’s standard of value, happy to talk through the approach. Sometimes the legal framework answers the discount question before the valuation begins.
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