Valuing Community Property Businesses: The Good, the Bad, and the Ugly of Louisiana Law

• Author: Sally Brown Richardson
• Position: A.D. Freeman Associate Professor of Civil Law, Tulane University Law School
• Pages: 810-847

Louisiana Law Review Louisiana Law Review

Volume 80

Number 3

Spring 2020

Article 9

9-15-2020

Valuing Community Property Businesses: The Good, the Bad, and Valuing Community Property Businesses: The Good, the Bad, and

the Ugly of Louisiana Law the Ugly of Louisiana Law

Sally Brown Richardson

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Repository Citation Repository Citation

Sally Brown Richardson,

Valuing Community Property Businesses: The Good, the Bad, and the Ugly of

Louisiana Law

, 80 La. L. Rev. (2020)

Available at: https://digitalcommons.law.lsu.edu/lalrev/vol80/iss3/9

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Valuing Community Property Businesses: The Good,

the Bad, and the Ugly of Louisiana Law

Sally Brown Richardson*

TABLE OF CONTENTS

Introduction .................................................................................. 809

I. The Good: A Battle Based on Facts ............................................. 811

II. The Beginning of the Bad: Ellington, Goodwill,

and “Personal Qualities” .............................................................. 818

III. The Ugly: Taking Stated Value at Face Value............................. 825

IV. Unraveling the Wrongness of Rao ............................................... 831

V. Getting Back to the Good: How Courts Should

Value the Community’s Interest in a Business ............................ 838

Conclusion.................................................................................... 845

INTRODUCTION

Valuing community assets must occur during any partition of the

community, yet few legislative or scholarly sources provide guidance for

how that valuation should be done in Louisiana.1 The pertinent statute on

Copyright 2020, by SALLY BROWN RICHARDSON.

* A.D. Freeman Associate Professor of Civil Law, Tulane University Law

School. Earlier drafts of this Article have been presented at the Family Law

Seminar at the Louisiana State University, Paul M. Hebert Law Center, and during

a Faculty Workshop at Tulane University Law School. The author thanks all

participants for their helpful input. The author also thanks Lila Tritico Hogan,

Ann Lipton, and Ronald J. Scalise, Jr., for their helpful discussions on prior drafts.

All views and any errors herein are solely attributable to the author.

1. For discussions on valuing community property in Louisiana, see

ANDREA CARROLL & RICHARD D. MORENO, MATRIMONIAL REGIMES § 7:27, in

16 LOUISIANA CIVIL LAW TREATISE 761–76 (4th ed. 2013) [hereinafter

MATRIMONIAL REGIMES]; ROBERT C. LOWE, LOUISIANA DIVORCE § 9:123, in 2

LOUISIANA PRACTICE SERIES 199–02 (2019) [hereinafter LOUISIANA DIVORCE];

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810 LOUISIANA LAW REVIEW [Vol. 80

the topic of partition simply states that parties to a divorce must provide a

detailed descriptive list that includes, among other things, all of the

community property and the “fair market value” of that community

property.2 The other party to the divorce then has a chance to “traverse or

concur” in those valuations,3 but ultimately the court must “value the

[community property] assets”4 and determine the “fair market value” of

each asset.5 As the Louisiana Second Circuit Court of Appeal aptly

observed in the infamous 2003 case Ellington v. Ellington, “the law

provides no mathematical formula for determining the value of

community assets.”6

Although legislation gives no exact roadmap for how to value

community property, Louisiana courts over the past two decades have

provided an increasing number of examples of what not to do in the

context of valuing the community’s interest in a business.7 Following the

Ellington decision and the legislation that spawned from that decision,8

courts have increasingly taken the position that the community’s interest

in a business is automatically valued at the buy-sell amount stated in the

agreement that initially established the community’s interest in that

business.9 Such results, as asserted herein, are a misreading of the

statutorily provided valuation requirement in a community property

partition and have the potential effect of mis-valuing the community’s

interest in a business to the detriment or benefit of the spouse who is not

ultimately assigned the asset.

This Article proceeds in five parts. First, the Article explores how

courts determined community property business valuations prior to

Ellington v. Ellington. Second, the Article explains how the Ellington

case—a case concerning the valuation of goodwill in a community

Kenneth Rigby, Matrimonial Regimes: Recent Developments, 67 LA. L. REV. 73,

98–108 (2006).

2. LA. REV. STAT. § 9:2801(A)(1)(a) (2018).

3. Id. § 9:2801(A)(2).

4. Id. § 9:2801(A)(4)(a).

5. Id. § 9:2801(A)(1)(a).

6. Ellington v. Ellington, 842 So. 2d 1160, 1166 (La. Ct. App. 2d Cir. 2003);

see also Head v. Head, 714 So. 2d 231, 234 (La. Ct. App. 2d Cir. 1998) (“Business

valuations methods are not an exact science . . . .”).

7. Infra Part III.

8. Infra Part II.

9. Bulloch v. Bulloch, 214 So. 3d 930, 940–41 (La. Ct. App. 2d Cir. 2017);

Rao v. Rao, 927 So. 2d 356, 366 (La. Ct. App. 1st Cir. 2005); Baumbouree v.

Baumbouree, 202 So. 3d 1077, 1084 (La. Ct. App. 3d Cir. 2016); see also infra

Part III (discussing the decisions in Rao, Baumbouree, and Bulloch).