High Asset Divorce: Valuation of Assets
One of the most difficult tasks in a high asset divorce involves valuation, the process of putting a fair market value on a variety of assets.
For real estate, simply having an appraisal may not be sufficient. The market may be depressed and understate the real value of the asset. Also, simply defining the fair market value may not be sufficient if you need to trace the contributions made by each spouse to an asset that may be separate, marital or mixed property.
Professionals often have their practices in limited liability companies (LLCs), which act like corporations for liability purposes but more like partnerships for income purposes, with flow through taxation. A tax return likely will not reveal the true income of the spouse or the real value of the business. Experts, like forensic accountants, would need to be retained to perform these critical valuations. Also, these experts can offer guidance as to the contribution made by the other spouse to the business. Did the other spouse work while the “professional” spouse went to school? Did the other spouse enable the practice to grow by caring for the children or making other contributions? Again, given the potential value of a professional practice, determining the proper valuation will be key to a fair and equitable division of all marital assets.
Investments also require valuation. The current value of an investment is often a poor representative of its true value. For example, a retirement account or pension will have a present value far less than the actual value of the asset at the time the parties will start receiving benefits. And as with real estate and businesses, both spouses may have made contributions to the value of the investment or the increased value of the investment that require tracing for proper division.
Individuals with high net worth have other assets not easily accessible for value – from fine art to country club memberships to seats on profit and non-profit boards of directors. Experts will be necessary to properly gauge the value of these assets for proper division and to trace for contribution.