Property division is a common occurrence in California divorce. In some cases property division actually involves the sale of community property such as the family home. However, in other cases the property can be retained by a spouse. In that event, the asset is valued and the other spouse compensated for their community property interest. That compensation can come from refinancing the home or other funds. However, before property division with a compensating payment can occur, the community property must be valued.
What is the fair market value?
The fair market value of a property is the highest price agreed to on the date of valuation by:
- A seller, being willing to sell but under no obligation or urgent necessity to do so; &
- A buyer, being ready, willing, and able to buy but under no particular necessity for doing so.
It is important to determine the fair market value of property because it is the value used by the court for the marketable asset in a marital dissolution case. In addition, your divorce attorney needs to have an accurate valuation of the property to negotiate with the other party.
Who are valuation experts?
Valuation experts are people who are appointed by the court to value property. They may be court-appointed or presented by the parties.
What should be the time for valuation?
A date as near as possible to the time of trial should be used in valuing the assets and liabilities in property division.
Can alternative dates be used?
Yes. If it is the only way to promote an equitable division of property in divorce, then an alternative valuation date may be used. Factors that may induce the court to use an alternative valuation date are:
- A party’s deliberate actions that prevent the valuation of the property.
- A party’s squandering of community assets after separation
- Waste or mismanagement of assets by a party.
- An increase in the value of the community estate through the sole hard work of a party.
Whose opinions can establish the value of real property?
The following are the only persons qualified to give opinions on the value of real property:
- An expert qualified to express such opinions, or
- The owner or the spouse of the owner of the property or property interest in being valued.
What are the valuation methods?
There are three methods that may be used in valuing property: the Market Approach, the Income Approach, and the Cost Approach.
What is the market approach?
Under this approach, the price of a sale or contract to sell involving the property (or a comparable property) is used as the basis for the opinion of the witness that establishes the value of the property. The sale must have been made in good faith and must have happened within a reasonable time before or after the date of valuation.
When is a property considered comparable property?
In order to be considered comparable, the following requisites must concur:
- The sale or contract must have been made sufficiently near in time to the date of valuation.
- The property sold must be located sufficiently near the property being valued; and
- The property must be sufficiently alike in character, size, situation, usability, and improvements to make it clear that the property sold and the property being valued are comparable, and that the price paid for the property sold sheds light on the value of the property being valued.
What is the income approach?
In this method, the basis for the opinion of the witnesses on the value of the property are the incomes earned by the property. Income may be in the form of rent. Rental value of a comparable property will also suffice as basis under this method.
What else aside from rent can be considered in income approach?
The capitalized value of reasonable net rental value may be used as basis under the income approach, as well as a portion of gross sales or income from a business that operates on the lease property.
What determines the value in the cost approach?
The following indicates the value of a property under this approach:
The value of the land together with the cost of replacing or reproducing the existing improvements thereon, if the improvements enhance the value of the property or property interest for its highest and best use.
Less whatever depreciation or obsolescence the improvements have suffered