Tax Discounts in Business Valuations for Divorce

Historically, courts have not allowed a discount for built-in capital gains tax when valuing a business for divorce purposes.  A couple of recent cases point up some inconsistency in this area.  In Balicki v. Balicki, the Pennsylvania Superior Court ruled that family law courts need to consider the tax consequences of selling a marital asset (including a business enterprise).  Such a discount for taxes is required even if a sale is not planned or imminent.

On the other hand, the Nebraska Court of Appeals recently ruled in Shuck v. Shuck.  The Court reversed the application of a discount for built-in capital gains tax liability by a court-appointed expert.  The Court reasoned that such a discount is relevant under only the following two circumstances:

• The sale of the marital business is reasonably certain to occur in the near future.
• The sale of the marital business is necessary in order to satisfy a spouse's obligations upon divorce.

I tend to agree with the findings in Shuck. 

There is one area where I believe a tax discount for divorce valuations is appropriate.  For cash basis taxpayers, I think it is reasonable to apply a discount for income taxes against the collectible value of trade accounts receivable.  I justify this position because the earnings process is complete, the cash will be collected in the near future, the prevailing tax rates can be estimated reliably, and the taxes will be due in the foreseeable future.  Let me know if you agree or disagree and why.  Thanks.