Often during my divorce mediation sessions, couples want to know how much something is worth so they know how to divide it fairly. But, the actual value of something can be subjective or fluctuating. For example, we all know that house values have varied over even the past year and, often, that is one of the more significant assets a couple has to divide. Similarly, businesses are subject to a wide variety of valuation models, in some cases differing between 100s of thousands or more, depending on the methodology used. So, how do you decide on a value for divorce purposes? Recently, I even had a situation where the couple in mediation had a very unusual and unique luxury car collection – some in various stages of being rebuilt. How does that get valued?
The default in divorce has always been formal appraisals. Each of your attorneys hire separate appraisers to provide a value of your properties, businesses, and even car collections, often at significant expense, and sometimes biased towards the side that hired them. But, is that the only way?
Can You Agree Without an Appraisal in Divorce Mediation
Divorce mediation is a collaborative process where both parties work together to resolve issues and reach a fair agreement. Couples usually expect to have to pay for appraisals, which can range from $500 for a residential real estate appraisal to $25,000 or or more for a business valuation. And if they are in litigation with 2 separate attorneys, double that! However, an appraisal is really just someone’s professional opinion on the value of an asset at that moment within the scope of that field. Also, it’s somewhat subjective. If you hired 3 different appraisers to value your business, it’s highly unlikely you’ll get 3 of the same valuations; and, they may vary significantly. So, do you have to get an appraisal to value your assets in Divorce Mediation? I usually say, “let’s first try to see if you can agree on a value without hiring an appraiser.” You can always hire an appraiser later.
So, how do you determine the value of the asset? Let’s take your house, for example. You can hire an appraiser and agree to accept the outcome even if you disagree. Or you can take preliminary steps, at no cost, to make sure you both feel comfortable with the value.
First, you can just agree! I know that sounds strange, but even just this week, I had a couple where one said, “I think the Fair Market Value of the house is $750,000” and the other said, “Yes, I agree.” Done. Really, unless you’re planning to sell your house, the value is subjective based on market conditions and condition of your house on that day. So, if you both agree on a value and it feels fair to both of you, you can just use that.
Another option I often suggest is getting one or more Broker Price Opinions (“BPOs”). These are essentially free appraisals by a real estate broker. The Broker can actually come to your house, analyze the specific nuances of your particular home and provide a detailed written report on the value of your house. Because there is no cost for a BPO, you can even obtain a few of them and average the results, if that seems more comprehensive and fair.
Ok, so that seems straightforward enough for a house, but what about a business? Yes, business valuations can be very complicated, highly nuanced and very expensive. But, again, this can be something to which you both agree prior to engaging a professional valuation expert. Most businesses that have any significant value employ a CPA, CFO or Comptroller. These are the experts on your business financials. I typically suggest first getting a “back of the envelope” range on the value of your business from your team. What if you were going to apply for a business loan? You wouldn’t hire a business valuation expert. You’d use your own in-house financial professionals to put together a valuation of your business supported by current profit and loss statements, balance sheets, and company accounting reports. So, why not start there? Often couples are able to use their private valuations to reach an agreement.
When Do You Need an Appraisal?
I’m not suggesting that you should never getting an appraisal in divorce mediation. In some situations, couples just are too far apart on a valuation or they just aren’t comfortable relying on a more casual valuation. In those situations, I do recommend a formal valuation. However, instead of each person hiring a separate professional who may come back with vastly different numbers, I usually refer to a neutral appraiser who can provide a more objective analysis.
In those situations, you may agree in advance in our mediation sessions to use the final value provided by the formal appraiser without question. This way there is some basis to continue discussions, reach final agreements, and move forward while reducing unnecessary conflicts.
Conclusion: valuation of assets Creates the Foundation for Fairness
Divorce mediation is all about creating a collaborative, peaceful, and fair resolution. Valuation of assets (and debts) plays a vital role in making that possible by providing a basis for equalizing your financial situation. However, instead of hiring competing valuation professionals, with Modern Mediation’s team mediation process, we first use information already known by your own advisors or the expertise of our professional mediation team. If more assistance is needed, we bring in neutral professional appraisers, who can assist in an unbiased evaluation of your most important assets.
These logical steps create the foundation for a balanced settlement, empowering you to make confident decisions about your future. Reach out to Modern Mediation today to learn more about how we can help guide you through this process with care, professionalism, and respect.