Fine art is an asset that may be divided in divorce under the same rules that apply to a home, a car, stocks and other property. However, there are a few unique issues in that fine art is typically considered to be a hard-to-value asset. As such, experts are needed to determine what the art is worth before it can be split. New York law provides the framework for dealing with art in divorce.
Marital vs Separate Property
Only marital property is divided in divorce. Generally, marital property is property that is acquired after the parties’ wedding date up to the date a divorce action is filed. Separate property is property that is either acquired before the parties marry, a provable gift specifically to one party of the marriage, or through an inheritance during the marriage.
Art acquired during the marriage is marital property unless a spouse’s separate funds paid for it or it was a provable gift or inheritance to one spouse only.
Passive vs Active Asset
Assets are treated differently for purposes of equitable distribution depending on whether they are passive or active. Art is a passive asset because it increases or decreases in value based on external market forces. An active asset changes in value due to the efforts of the owner spouse. Passive assets are generally divided equally between the spouses.
Methods of Valuing Fine Art
Where the parties don’t want to sell the artwork and divide the proceeds, an appraiser must be hired to determine what the art is worth. There are two methods used to value art: the fair market value appraisal and the marketable cash value appraisal.
A fair market value appraisal is based on what someone is willing to pay for the art including expenses and taxes. A marketable cash value appraisal is the fair market value net of expenses such as shipping, insurance, commissions and other costs and taxes.
Both methods assume that a willing seller is disposing of the art in an open market to a willing buyer with reasonable knowledge of the facts and not under any constraints in buying the art.
Resolving Disputes
The parties must agree on the valuation method because they result in vastly different outcomes. If they cannot agree, the court may step in and order the sale of the artwork as the only way to determine the value. A judicial sale is usually not beneficial to either party. It may not result in the best price and could lead to a bidding war with a third party driving up the cost for the spouse who wants the artwork.
The ideal solution is for the parties to agree on a valuation methodology and an appraiser. If there is an objection to the appraisal by either party, a second appraisal can be done using the same methodology. The parties can then agree to one of the appraisals, average the two amounts or get a third appraisal. If there is a third appraisal, that appraiser will typically be selected by the other two appraisers.
Settling in this manner is usually better than risking a judicial sale or spending money to litigate the issue.
If you are considering divorce, contact us to discuss how we can help protect your interests and achieve a fair result.