Summary in Divorce
In a divorce, the parties must assign a value or worth to their assets.
This is called valuation. Sometimes, it is easy, as in a bank account; sometimes it is difficult, as in the case of a family business and intangible assets. If the parties cannot agree, a judge relies on the testimony of experts. Valuation should not be confused with classification of assets, such as separate or immune property, marital or community property. Classification of assets is done as an adjunct to their distribution, but assigning a value is independent of classification. A dollar value must be assigned to every asset in the marital estate. Fair market value -- roughly defined as the "price a willing buyer would pay to purchase the asset on the open market, with neither under any compulsion to complete the transaction" -- can create problems in a divorce settlement. Many assets, most notably retirement benefits, are valued at thousands of dollars, yet a willing buyer would be unable or unwilling to purchase them. In general, in divorce actions, the value of an asset is the amount of future benefit the owner will receive. Closely held corporations, single-proprietor businesses, private companies without publicly traded stock must be valued by experts who use different methods to place a value on the business. Many factors make this calculation difficult and subject to dispute. Emotional attachments may make this valuation explosive because one spouse (usually the husband) may be far more emotionally attached to the business. In some cases, part of the value of the business may be separate property and the remainder marital property, as in the case where one spouse had an established business when he or she married. Although valuation of a business can be very difficult, in general there are two approaches that expert witnesses bring to divorce actions to assess the value of a business. The first is the total value approach, which separates each asset and values it separately, and the second is the going concern approach, which treats the business as a complete entity. Valuing a marital business can become further complicated by special situations that require special consideration, including 1) partial ownership, when the owning spouse owns less than the whole business; 2) minority vs. majority interests, which tend to reduce the minority owners’ control of the business; 3) a lack of marketability; 4) lack of voting rights; and 5) "key man," who might leave the business. In general, the valuation of the marital home requires an appraisal. When a couple sell the marital home as part of a divorce, they divide the equity of the house, which is the market value minus the value of any mortgage and other costs associated with the sale. When a couple sell the marital home as part of the divorce settlement, they usually divide the net sales proceeds and in so doing split the cost of selling -- real estate commissions and related costs -- between them. However, when one spouse keeps the home, normally these costs are not considered in the valuation of the home. Women, who very often keep the martial house when small children are involved, should be mindful of this.
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#694: If you have a small business, you may want to dissolve this outside of the divorce and reference the selling agreement within you divorce papers, rather than having all the business issues addressed in the contents of the final decree or judgment itself.
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