During a divorce settlement, if the couple can't agree on how to divide the marital property, then the property may need to be professionally valued so that it can be divided fairly. This valuation includes all marital property - personal property, homes, and businesses - and can be complicated.
Different Paths of Property Valuation
Ideally, you and your spouse will be able to agree on how to divide marital property. Sometimes this means that you use a mediator or your attorneys to help you come up with a fair agreement. If you cannot agree on how to split your marital property in a divorce, you (or your lawyers, if you have them) will need to approach the judge and ask for the court to divide the marital estate.
In assigning fair values to property, the court or mediator will usually rely on the testimony of expert witnesses, such as a real estate appraiser who can assign a fair value to a house, or an antique dealer who can estimate the value of family heirlooms. These experts can be recommended by the court, the mediator, the attorneys, or the parties to the case, but must be neutral and unbiased in favor of either of the parties.
Valuing a Home
When determining the value of a home, professionals will usually use a Comparative Market Analysis (CMA). This takes into account comparable homes recently sold and currently listed for sale in your home's neighborhood. A CMA will also factor in any special features of your home - for example, is your home nearly identical to three homes that were just sold, except your home is the only one with an in-ground pool? Does your home have an updated chef's kitchen? Special features like these will be taken into account during valuation.
Additional Factors Considered
- Appreciation and Depreciation - The valuation may also take into account any appreciation or depreciation of the home during the marriage, particularly if the home belonged to only one of the spouses before the marriage. In this case, the change in value of the house would need to be divided rather than the home's entire value. To determine a change in value, the appraiser or realtor will need to do a good faith estimate of the home's value at the beginning of the marriage as well as the value now.
- Home Improvements - You will also want to note any improvements made to the property during the course of the marriage that were paid for with marital funds since those improvements and additional value will be subject to division even if the house itself isn't.
Valuing Personal Property
There are three methods for valuing personal property.
- Cost Approach - This method is cut and dry and can be used on everyday items that would not be hard to replace. Here, the property is valued at the cost it would take to replace to the property.
- Market Comparison Approach - As with houses, a market comparison valuation takes into account similar items that have recently been sold and how they compare to your item. This approach is probably the most common when considering rare and collectible items that could not be easily replaced.
- Revenue Approach - If property was purchased as an investment (such as a piece of artwork), then the potential future value is more important than the current value of the item. In this case, an expert appraiser would need to calculate the property's ability to generate revenue in the future.
Valuing a Business
If one or both spouses own part of a business, then that ownership may be considered property that has to be valued as part of the divorce proceedings. To determine the value of this ownership interest, a certified forensic accountant will look at:
- Assets and Debts - This includes tangible property, such as equipment and inventory, as well as intangible property, such as patents and "goodwill" (customer relationships). The valuation will also account for any money the business currently owes.
- Business Profits - To find the business' profit, the accountant will look at how much income the business makes as well as the business' expenses, such as equipment rentals, rent, and employee salaries. The profit is the income minus the expenses.
- Increased Value - Depending on the state, and on how long the business has been owned by either of the parties, the accountant may try to determine whether the value of the business has increased since the marriage. Any increase (or decrease) in value may also be subject to property division in the divorce.
- Valuation Date - The court will set a valuation date, especially since divorces can take a long time. Usually, the business is valued at the time the divorce is filed, but some states may value the business closer to the time of property distribution.
When valuing a business there are two different methods for determining the value. The first is the book value method, which bases values directly on the company's bookkeeping and then adjusts the value of items for depreciation due to normal wear-and-tear or appreciation due to increased value since the items were acquired. The second, and more common, method is the market approach method. This method values the business at what a buyer would pay to acquire the business based on its presumed earning capacity.
The Real Value of Your Property
While assigning a financial value to your property during your divorce may seem fairly straightforward on paper, there is always the sentimental value of items and the pain of divorce that can make the whole process much more difficult. Even though sentimental value isn't recognized by courts, it can certainly affect you, so don't forget to utilize various methods of self-care to help manage your stress and keep yourself calm.