In Barton v. Barton, the Supreme Court of Georgia was asked to decide this question: “in placing a value on the stock of a closely-held corporation for purposes of dividing marital property, is the court bound by the value set forth in a buy-sell provision of the stockholder agreement?”

The Court found that “Husband owns one-half of the stock of Triad Specialities, Inc., a closely held corporation”; that “the stock is subject to a buy-sell provision in the stockholder agreement which provides that in the event of husband’s death, disability, bankruptcy, or other specified triggering event, the other shareholder has a right to purchase husband’s stock at a price to be determined by a formula”; and that “under that formula, the value of husband’s stock would have been fixed at $342,200.” However, an “arbitrator placed a fair market value on the stock of $508,000, and the division of marital property was based on that valuation.”

In affirming the court below, the Court noted that “a ‘clear majority of courts hold that the value established in the buy-sell agreement of a closely-held corporation, not signed by the non-shareholder spouse, is not binding on the non-shareholder spouse but is considered, along with other factors, in valuing the interest of the shareholder spouse.’” The Court ruled that “the rationale for the majority rule is simple – the buy-sell price in a closely-held corporation can be manipulated and does not necessarily reflect true market value,” and that as a result “the majority rule is more sound and it was applied properly in this case.”

SOURCE: Supreme Court of Georgia