In business valuation, few assumptions matter as much—or cause as many disputes—as the discount rate.

To many non-experts, it can sound like a technical footnote. In reality, the discount rate often determines whether a business is worth $3 million or $5 million, whether damages are reasonable or overstated, and whether an expert’s opinion is accepted or challenged.

In 2026, discount rates are under more scrutiny than they have been in years. Courts, attorneys, and opposing experts are paying close attention, not because valuation theory has changed, but because the economic environment has.

What a Discount Rate Is (Without the Jargon)

A discount rate answers a simple question: What return would a reasonable investor require to take on this business, with its specific risks, today?

That rate reflects the time value of money, the uncertainty of future cash flows, and the risks unique to the business and its industry. 

In practice, valuation professionals usually estimate discount rates using established frameworks such as: The Capital Asset Pricing Model (CAPM), The Build‑Up Method, and The Weighted Average Cost of Capital (WACC). Courts generally accept these methods. What they question is how the inputs were selected and applied.

Why Discount Rates Matter More in 2026

Interest rates are no longer background noise. After years of near-zero rates, today’s environment makes discount rates central drivers of value. Currently, interest rates remain higher than most of the past decade, borrowing costs vary widely depending on company size and credit quality, and investors are more sensitive to risk and uncertainty; as a result, discount rates are no longer passive assumptions. They are active drivers of value.

Small changes can mean big money. A 1% change in the discount rate can shift value by 10% or more, often translating for a closely held business into hundreds of thousands or millions of dollars. That difference often exceeds the combined impact of disputes over growth rates, normalization adjustments, or even methodology selection.

Where Discount Rate Disputes Arise

Discount rate disputes commonly appear in divorce matters, shareholder disputes, and lost profits cases. These disputes often focus on unsupported risk premiums, inconsistent assumptions, and outcome-driven adjustments.

Common Discount Rate Problems

Across litigation and contested valuations, the same issues appear repeatedly; this includes but not limited to: relying on published data without company‑specific analysis, layering multiple risk premiums without explaining overlap, reusing discount rates from prior valuations without reconsideration, applying aggressive growth assumptions alongside high risk premiums, and treating discount rate selection as a formula exercise rather than judgment. When these issues appear, credibility, not just math comes into question.

What Courts Are Looking For

Courts are not searching for a single correct discount rate. They are looking for transparency, consistency, current market support, and independent professional judgment. In short, courts want to understand how the expert thought, not just what number they chose.

Practical Takeaways

Discount rate assumptions should be addressed early, supported clearly, and explained in plain language. When handled properly, they reduce disputes. When handled poorly, they become credibility issues.

Judgment Still

Discount rates are not just some technical details buried in an appendix. They can be the center of the valuation debate. Whether the matter involves divorce, shareholder conflict, damages, or planning, a defensible discount rate requires awareness of current economic conditions, discipline in applying accepted methods, and independence from the desired outcome. When those elements are missing, valuation disputes often turn into credibility disputes—and credibility is difficult to recover once lost.

Professional Disclaimer

This article is for educational purposes only and does not constitute legal, tax, or investment advice.

© 2026 TruVim

When a closely held business or professional practice is valued in an Alaska divorce or ownership dispute, goodwill is often the most contested component of value. Parties frequently assume that strong earnings, long client relationships, or a respected reputation automatically translate into divisible business goodwill.

Alaska courts have been clear: that assumption is wrong.

Under Alaska law, only goodwill that is transferable, marketable, and independent of the individual owner may be included in a divisible business interest. Goodwill that depends on the personal reputation, skills, or continued presence of an individual is generally personal goodwill and not subject to division.

Understanding this distinction and applying it correctly in a valuation is critical for attorneys, litigants, and valuation experts.

What Is Goodwill in a Business Valuation?

In valuation terms, goodwill represents the portion of a business’s value that exceeds the fair market value of its identifiable tangible and intangible assets. It often reflects factors such as:

• Established customer relationships
• Brand recognition
• Workforce-in-place
• Operating systems and processes
• Expected future earnings beyond a normal return on assets

However, valuation theory distinguishes between two very different types of goodwill.

Enterprise Goodwill

Enterprise goodwill:

• Attaches to the business entity itself
• Exists independently of a specific owner
• Is transferable to a buyer
• May be sold, pledged, or retained after an owner’s departure

Enterprise goodwill can survive a change in ownership and therefore may be subject to division.

Personal Goodwill

Personal goodwill:

• Is inseparable from an individual’s personal reputation, skills, or relationships
• Depends on the continued involvement of a specific person
• Is not transferable
• Is typically extinguished if the individual leaves the business

Personal goodwill is generally not divisible under Alaska law.

Alaska Supreme Court Guidance: “No Market, No Value”

The Alaska Supreme Court has consistently emphasized that goodwill must be marketable to be divisible.

In May v. Petersen (2025), the Court rejected the inclusion of goodwill in a law firm valuation where there was no evidence that the goodwill could be sold, transferred, or pledged. The Court made clear that:

• High earnings alone do not establish enterprise goodwill
• Reputation-based value tied to a professional is personal goodwill
• Without a demonstrable market, goodwill has no divisible value

The Court’s reasoning reinforces a practical rule applied in Alaska cases:

If goodwill cannot be sold or transferred to a hypothetical buyer, it does not belong in the marital estate.

Why Professional Practices Are Especially Vulnerable to Error

Goodwill disputes most often arise in:

• Law practices
• Medical and dental practices
• Accounting firms
• Consulting and service-based businesses
• Owner-dependent trades

In these businesses, revenue frequently follows the individual rather than the entity. Alaska courts are skeptical of valuations that:

• Capitalize excess earnings without isolating personal effort
• Assume clients will remain after the owner’s departure
• Ignore enforceability and duration of non-compete agreements
• Fail to identify transferable assets supporting goodwill

A valuation that does not separate personal earning capacity from enterprise value risks overstating goodwill and losing credibility.

How Alaska Courts Evaluate Goodwill Evidence

Although Alaska does not mandate a single valuation method, courts consistently examine whether the expert has addressed the marketability and transferability of goodwill. Factors often considered include:

• Existence of binding non-compete agreements
• Ability to replace the owner without material revenue loss
• Presence of institutional versus personal clients
• Evidence of comparable business sales
• Whether goodwill survives a hypothetical sale

Courts look beyond labels. Simply calling goodwill “enterprise goodwill” does not make it so. The conclusion must be supported by facts, not assumptions.

Common Valuation Mistakes Courts Reject

Goodwill conclusions are frequently challenged when experts:

• Apply capitalization methods mechanically
• Rely solely on excess earnings models
• Ignore Alaska’s smaller, relationship-driven markets
• Fail to test actual transferability
• Conflate earning capacity with business value

These weaknesses often surface under cross-examination and can materially affect case outcomes.

Practical Implications for Attorneys and Litigants

For attorneys:

• Scrutinize how goodwill is identified and supported
• Ask whether a hypothetical buyer could realistically acquire it
• Challenge unsupported assumptions early

For business owners:

• Do not assume all business value is divisible
• Understand how owner dependence affects valuation
• Recognize that goodwill treatment varies by jurisdiction

For valuation experts:

• Clearly distinguish personal and enterprise goodwill
• Tie conclusions to market evidence
• Document assumptions with Alaska-specific facts

Why Independent Valuation Judgment Matters

Goodwill analysis requires professional judgment, not formulaic application of models. Alaska courts expect valuation experts to apply independent judgment consistent with professional standards and economic reality.

Valuations that acknowledge uncertainty, explain limitations, and align with Alaska case law tend to carry greater weight than those that overreach.

Final Thought

In Alaska, goodwill is not presumed—it must be proven.

When goodwill cannot be sold, transferred, or separated from the individual, Alaska courts have shown they are willing to assign it no divisible value at all. For disputes involving closely held businesses or professional practices, careful goodwill analysis is not optional; it is central to a credible valuation.