Asset Valuation in Divorce Cases

Equitable Distribution

In a divorce case the court must decide the division of assets and liabilities using the legal principle of equitable distribution. If the property was acquired during the marriage from funds or efforts related to the marriage the property is a “marital asset” and will be divided by the court pursuant to equitable distribution. In most cases the property is divided equally unless there is justification for an unequal split based upon relevant considerations. It is discussed in more depth in the article on equitable distribution. This article will discuss the division of assets and in particular how those assets are valued.

Before the court can actually divide the parties marital assets it must determine the value of such assets.

Valuation of Assets

Valuation of certain assets is inherently difficult. While other assets are relatively easy to value. A business selling a product producing a certain income can be readily determined. A professional producing the same income may not be. A professional practice usually depends exclusively on the professional himself. This concept is known as “goodwill”. There are two types of goodwill:

Personal goodwill– applies to those businesses, often professional, which rely on the skill reputation and continued participation of a spouse in a business. When determining the value of the business for purposes of equitable distribution value of the business does not include personal goodwill.

Professional goodwill– this is the second type of goodwill which exists separate and apart from the reputation or continued presence of the party. This goodwill is valued by the market value, what a willing buyer would pay, and what a willing seller will accept, neither acting under duress, with the sale of the business.

When valuing the professional practice, the valuation is relatively simple, the company’s value will primarily consist of the money in the company bank account, accounts receivable, accounts payable, and the fair market value of the remaining assets i.e. desks, computers etc. the value of the practice does not include personal goodwill.

When valuing a nonprofessional business, goodwill is defined as the value of the business “which exceeds its tangible assets”. It represents the tendency of clients/patients to return to recommend the practice irrespective of the individual practitioner. This type of goodwill is subject to equitable distribution, on my personal goodwill.

It is extremely important that the divorce attorney has substantial experience in the valuation of assets in divorce cases. Asset valuation can often have a substantial effect on the outcome of a divorce case and can have a major effect on equitable distribution. The initial valuation of assets is first seen in the party’s financial affidavit. It is important to scrutinize a party’s valuation very carefully and conduct in depth financial discovery when appropriate. It is important to consider whether a forensic accountant or a professional appraiser can be helpful. The Law Office of Jessica Mishali, P.A. has been handling divorce and family law cases for over four decades and will handle your asset valuation issues confidentially and with professionalism. Please contact our office for a consultation at (561) 833-2772 or contact us online.