The typical procedure for Texas divorce lawyers to analyze property division in a divorce case is to put all the assets and liabilities on a spreadsheet and fill in the values. At that point the division usually starts to make sense as you assign certain assets and liabilities to each of the parties. Often these assignments are relatively simple and agreed to. For example, everyone may agree that the wife should get the house and be responsible for the mortgage so you automatically fill in your spreadsheet that way on that particular asset and debt.
Sometimes the parties may have a dispute over how the overall split should be done. For example, one party may want a 50/50 division while the other side believes it should be a disproportionate division. I will save that topic for anther blog post. Today I will address the other common issue that arises in property divisions, that of valuation disputes. Below I will outline some of the more common asset types that result in valuation disputes and how they are each addressed.
Real Estate Valuation Issues
Probably the most common big asset valuation issue that arises involves the house. In most divorces (at least the ones I deal with) the parties own a house. Sometimes clients will come to me at the beginning of the case and say that the house won’t be an issue because they already have an agreement on it. Later I learn that they agree on who gets the house but they very definitely do not have an agreement on the value of the house.
Typically, the party getting the house has a very low value on the house and the party not getting it has a very high value. In situations like this the issue is normally addressed by one or both parties hiring an appraiser to do an appraisal of the property. Occasionally, both parties will hire an appraiser. The resulting dualing appraisals may have a valuation gap but normally this gap will be much smaller than the original gap the parties had.
Valuation of a Vehicle
Vehicle values are another potential area of dispute but obviously the values are a lot less than a house value, so there is less incentive to actually pay for and hire an appraiser. Instead the parties typically will do an online valuation of the vehicle using a website like Edmunds.com or Kelly blue book. While there are still some subjective components to the valuation such as whether the vehicle is in “excellent” or “average” condition, after doing an online valuation there should be a much smaller gap between what the parties believe the vehicle is worth.
Here is where it gets really interesting. When the parties are business owners things can get very complex in a hurry. It is very common in these cases for the spouse who runs the business and is very involved in it to expect to be awarded the business and for the other spouse to agree to this. But when the parties assign values for the business they may have a huge differential in their numbers. Often the business owner spouse will have a very low value and the non-involved spouse will believe the business is worth an astronomically high amount.
In these cases it is almost mandatory that a business valuation expert be hired by at least one of the parties to prepare a valuation report. The business valuation industry has standards and ratios that are used based on the financial condition and history of the business. They will evaluate the business and its financial records and then determine what the business would be likely to sell for to a third-party buyer.
This analysis is normally done using the assumption that the buyer would not receive a contractual agreement not to compete from the seller for some fixed period of time. In real world sales most buyers will insist on a non-compete provision but this cannot be factored into the valuation in a divorce case analysis. This is due to case law that very clearly makes the “personal goodwill” portion of the business not divisible community property. In cases involving professional practices and consulting-type business this can have a dramatic impact on the valuation (i.e., the value is a lot lower).
Hopefully this clarified some of the key valuation issues that arise in Texas property division cases. If you are considering divorce and have questions about any of these issues feel free to contact our office and schedule an initial consultation.
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