Valuation of Assets
The elephant in the room that drives many divorces is money. It is something each party is reluctant to admit, but nonetheless is highly integral to the divorce process. During the divorce proceedings, the court may employ a tracing method to determine what property belongs to what party. The main point of this tracing is to determine what property is community property and what property is separate property. California, as a community property state, affords different treatment to property acquired during marriage than to property acquired before marriage or through various means such as gifts or inheritances.
In order to equitably divide community property, such property must be properly valued. However, in situations where the proceeds of sale will be distributed to each party, valuation is not required. Unlike cash which is easily valued by a simple press of the button at the ATM, many sources of potential community property are tougher to value. Legal scholars and practitioners have discussed the valuation process for a host of specific assets. Ranging from closely held businesses to oriental rugs, the proper valuation of a specific asset can be quite unique. Following the proper valuation methodology is therefore critical to ensuring an equitable outcome of the proceedings.
The value the court will set will be the highest price on the date of valuation that the item would be sold for under normal market conditions. In re Marriage of Cream (1993) 13 CA 4th 81, 89 16 CR 2d 575. Under Family Code § 2552(a), the goal of the court will be to have the asset valued “as near as practicable” to the trial as it can be. Since this is a question of fact, both parties will attempt to value the asset using their own findings or by utilizing an appraiser. However, the court may, in its discretion, employ experts to do fact-finding on its own behalf. The most commonly accepted valuation methods include the actual sales price, comparable sales under the same or similar circumstances, offers by third parties, agreements made in anticipation of the future sale of such assets, and tax assessments.
One important tool for the valuation process may be the utilization of a forensic accountant. The goal of the forensic accountant is to review cash flow, documents, and other materials related to the assets to determine the true value of each asset. The family law attorney should have working relationships with trusted and experienced forensic accountants who are able to properly determine the true value of assets at issue. Whether it is a 401(k) or a shopping center, having an experienced forensic accountant for complex valuations can ensure that an inequitable distribution is not made by the family law court.