The Valuation of the Marital Estate During Divorce

Valuation of a Marital EstateWhat are your "things" worth? That is the question you'll be answering as you go through the divorce process. Determining the value of those assets will become the foundation of your final divorce settlement. There are many aspects that must be kept in mind when calculating these values.

The Different Values

When it comes to assessing value, your assets will fall into three basic categories: 

• Book value
• Replacement value
• Sentimental value 

A book value is determined by the purchase price of an item minus the depreciation value of that item. The depreciation amount could be equal to the amount of deductions used if that item was a business expense or as normal wear from use. For instance, if you bought a sofa for $2,000 that is five years old, the book value of that sofa could be as low as $800. That would become the value of that asset. 

A replacement value is what it would cost to get a new version of that asset. As an example, your attorney might bring up the issue of a flat screen TV. If you take that TV out of the house, then your spouse will need to replace that TV. In this case, that replacement cost could be higher than the current value of the TV.

With sentimental value, you are dealing on a more subjective level. Assigning sentimental value to any item can be complicated. You might feel entitled to a particular object, but if your spouse has sentimental value attached to that object, the value can go up. Your attorney could use this in the negotiations. However, this is a two-way street. If you claim sentimental value, your spouse will often do the same.

 

There are certain standards that are applied when the value of a marital estate is established.

The Trouble with Assets

One of the major difficulties that can center around assets, other than being concealed, is the issue of how to set a value on them. Your lawyer has the task of sifting through any number of standards of value to apply those that are most appropriate to the items in question.


Fair Market

Your lawyer, like many, probably makes the most frequent use of “fair market value” which is the price that “a hypothetical willing buyer would pay a hypothetical willing seller.” This standard has been applied for many decades by such entities as the courts, the Internal Revenue Service and business valuation specialists.

Fair market value has unfortunately been subjected to an equally long history of manipulation, exploitation and misuse by practically everyone who has ever needed to refer to it.


A Case In Point

Suppose for a moment that the value of a dinner table purchased six years ago is set at $6,000. Were the owners to put the table up for sale, the price for which it is sold constitutes its fair market value. Given the fact that the table is no longer new, it will no longer fetch its original purchase price.

This is due to the fact that used household furnishings rarely have much value. Furniture damaged by pets is likely to have no worth at all. The table under discussion, sold by the owner by means of an ad in the local newspaper, may bring only $750 or so. Since this is the most a buyer may be willing to pay, the table’s fair market value is approximately $750.


Purchase Price Standard of Value

This standard is quite different. The purchase price value represents the price that the current owner paid for the item when it was new (historical cost). Our couple bought the table six years ago and paid $6,000 for it. If the table is valued according to the purchase price standard, its value would be set at $6,000.

You may encounter a situation in which one of the divorcing parties used fair market ($750) to value the table and the other employed purchase price ($6,000). By applying two very different standards of value on the same item the couple has created a situation that will take some skill to resolve, which demonstrates clearly the hazards inherent in the valuation of a marital estate.