The Business and Corporate Litigation Committee of the American Bar Association Business Law Section released its annual update on business divorce litigation on September 30, 2026. The report outlines several notable developments in how courts address disputes between partners in closely held corporations and limited liability companies.
Valuation and Asset Division
Valuation remains a central issue in these cases. The report highlights that courts often use the income approach or market approach to determine the fair value of a business interest. In one case discussed, a court considered the discount for lack of marketability when valuing a minority interest held by a departing partner. This discount is generally applied to reflect the difficulty of selling such an interest quickly.
Separating marital property from business assets continues to present challenges. The committee notes that courts may treat a business interest as marital property if it was acquired during the marriage. Conversely, a pre-marital interest may remain separate property. However, commingling funds can blur these lines. The report notes that tracing the source of funds can be important when determining ownership stakes.
Many jurisdictions now encourage courts to look first to the buy-sell agreement in place between the parties. If such an agreement exists, it usually dictates how a partner’s interest is valued and purchased. When no agreement is present, courts apply default state laws regarding fiduciary duties and equitable remedies. This distinction often determines whether a case moves through litigation or arbitration.
Dispute Resolution Mechanisms
Arbitration clauses are frequently included in shareholder agreements to manage potential exits. If a dispute arises, parties usually refer the matter to an arbitrator rather than a judge. The report notes that arbitral tribunals have the authority to issue binding decisions, which may offer more flexibility than court proceedings. However, the enforceability of these awards varies by jurisdiction.
Mediation serves as a common preliminary step before litigation or arbitration begins. The committee observes that mediators help the parties communicate and negotiate directly. Successful mediation can result in a settlement that avoids the costs of a full trial. Yet, the report cautions that mediation is not successful in every instance.
Contributing Authors and Their Affiliated Firms
The report was edited by the Business and Corporate Litigation Committee of the American Bar Association’s Business Law Section, with Lee Applebaum serving as Editor Emeritus and Benjamin R. Norman as Co-Editor.
Recent Case Law Updates
Recent case law has discussed the duty of loyalty owed by controlling shareholders. Courts have ruled that a controlling shareholder who takes corporate opportunities for personal gain may owe a fiduciary duty to the minority shareholders. This duty may require the shareholder to act in the best interests of the corporation. Violations of this duty can lead to liability for breach of fiduciary duty.
Another area of focus involves the treatment of related-party transactions. The report highlights that courts scrutinize transactions between the corporation and its affiliates. If a transaction is unfair or not conducted at arm’s length, a court may, in some cases, unwind the transaction. This action aims to protect the corporation’s assets and the interests of its shareholders.
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