Part of the divorce process involves splitting up marital property. In order to divide the property, you need to know what it is worth. Sometimes parties can agree to the value of an asset. If not, the property needs to be valued. Below are some means of valuing some types of property, and some issues to keep in mind when valuing property.
The family home and other real property
The market analysis
The market analysis is usually done by a realtor who looks at the sale of similar houses in a given area, over a given time frame (usually about 6 months to a year). The market analysis is usually arrived at by averaging the square footage cost, and multiplying that number by the square footage in your home.
A market analysis is usually free, but it is not very accurate. It will not take into consideration any of the unique aspects of your home. Further, if a market analysis is done by a realtor who thinks he or she is going to sell your home, it is likely to come out artificially high, because the realtor wants you to think you will make a lot by selling your home.
An appraisal is done by a certified appraiser. It usually costs about $350 to $1,000. An appraisal will include a walk-through of your home in order to assess the unique aspects of the home. You will often not be able to rely on an appraisal prepared in conjunction with refinancing. First, the appraiser will consider the bank as the client, not you. Further, the appraisal is sometimes based upon values required by the bank, and can be artificially low or high.
The tax value
Do not rely on the value of your home as stated in your tax assessment. Those values are generally low, although as a result of the mortgage crisis, they are more accurate than they used to be.
Netting out costs of sale
Do not subtract the costs of selling a home when trying to determine equity, unless you are really selling the home. For instance, if the agreement is that the wife is going to stay in the home and she is going to pay the husband his part of the home equity, the equity must be figured by simply subtracting the mortgage principal balance from the fair market value of the home. If the home will be sold in the near future, it should simply be sold as part of the divorce so the true net value of the house can be determined.
A good way to determine the value of a vehicle is to go to www.kbb.com. The value to use for the purposes of a divorce is the “private party” value. Collectible cars may have to be appraised by a professional.
In most divorces, personal property such as furniture, dishes, sporting equipment, etc. does not need to be valued. First, the value of the property usually does not justify the expense of appraising the property. Second, courts will often not address personal property. If divorcing spouses are unable to decide between themselves who gets which items of personal property, a judge may well order all property sold and the proceeds split.
One way for parties to deal with the division of personal property is to make a list of the property, flip a coin, and the winner of the coin toss chooses one piece of the property from the list. Then the other person chooses one item. Turns are alternated until all the property is dealt with.
Gifts are not marital property. Instead, gifts belong only to the person who received the gift. Therefore, items such as the engagement ring, jewelry, and sports equipment are often not part of the marital property to be divided.
There are some items of personal property that do need to be appraised, such as collections, tools, guns, artwork, silver and pianos. A personal property appraiser will need to be hired.
Publicly traded stocks and bonds
Publicly traded stocks and bonds do not need to be independently valued. However, when dividing stocks and bonds, you should keep in mind that when stocks are sold, there will be a gain or a loss on the stock, depending upon the stock or bond’s basis. Both gains and losses have tax consequences. When dividing stocks and bonds, the tax consequences should be factored into the value.
Retirement funds are not “worth” their stated value. For instance, 401(k)s and IRAs cannot be liquidated without penalty until a person reaches retirement age. Therefore, a 401(k) with a value of $60,000 is really only “worth” about $24,000 after taxes and penalties if the owner is not of retirement age.
As another example, if a divorcing spouse has a defined benefit retirement plan, it is often not “worth” its full stated value because the money cannot be reduced to a lump sum payment at the time of the divorce. Money payable in the future is “worth” less than money payable today. Where a defined benefit pension plan is part of a marital estate, the retirement will have to be valued by an expert.
There are other assets, such as stock options, judgments, life estates, interests in irrevocable trusts, interests in family partnerships and interests in closely held businesses, that will need special consideration and often require expert valuation.