If you are getting divorced, you and your spouse are going to have to divide your marital property. You can come to your own agreement or litigate the matter in court. Either way, the division of assets won’t be fair if you don’t know what each asset is worth. While this is straightforward in many divorces, other times it may require a financial expert to value the property. The most common situations where an expert may be used are for the valuation of a home or other real property, a pension or other retirement account, or a business.
Valuation of a Home or Other Real Property
When valuing real property, appraisers look for sales of similarly situated properties in the same neighborhood. They want to know what buyers have paid for comparable properties, not what the parties or a real estate agent/broker thinks their property is worth.
Ideally, couples should agree on a value after the appraisal. Going to court over the valuation adds time and money to the divorce and a judge could order the sale of the property at auction to settle the issue to the extent there are competing appraisals and the parties are unwilling to come to an agreement.
Valuation of a Pension or Other Retirement Account
Most retirement accounts don’t require an expert to determine the value. However, there are some exceptions.
With pensions, an expert may be needed depending on how the pension is calculated or divided. There are two ways to pay out a pension in divorce. In the first option, the parties wait until the pension is in payment status. Then the owner-spouse pays out half of the amount received every month to the other spouse until the owner-spouse dies. The benefit is that the pension doesn’t have to be valued because as the value of the pension changes so will the monthly payments.
The second option is to pay out half of the total value in a lump sum from the pension via a Qualified Domestic Relations Order (QDRO) when the divorce is finalized. While the non-owner spouse gets a lump sum right away, this option requires a valuation expert to determine what the pension is worth in the present day. Hiring an expert can be expensive but may be worth it depending on the circumstances of the case.
In some instances, other types of retirement accounts may need an expert for valuation. For example, if contributions were made to a retirement account between the time of the divorce filing and the date of the valuation, the appreciation on those post-filing contributions must be backed out of the valuation. If there aren’t financial statements indicating what the accounts were worth at the time the divorce was filed, it may be necessary to hire an expert to value the account. However, the parties can also agree to pro-rate the amount of the contribution against the total amount in the account and then apply that percentage to calculate the appreciation that will be deducted when dividing the account.
Valuation of Business
Businesses can be expensive to value since they generally require that an expert conduct a forensic analysis of the income and expenses, including verifying that they are legitimate. For instance, a common issue that may need to be investigated is when items purchased for the business are really for the personal use of the owner spouse, which can make the business seem less profitable.
Despite the expense of a valuation expert, it may be worth hiring one if the business is a large asset or if the non-owner spouse made significant contributions to the business, either directly or indirectly.
Valuations of marital assets may be required in other instances as well. They can be costly but also essential in divorce because they provide both parties with the knowledge they need to negotiate a fair settlement.
When dividing property in divorce, it is important to consult an experienced attorney who can represent your best interests and help you achieve a positive result. Contact us for help with your divorce.
