Valuing Complex Assets in Prenuptial Agreements

For a prenuptial agreement to be valid, each prospective spouse must make a full and accurate disclosure of all assets and liabilities. In order to fulfill this requirement, a value must be given for all assets. The type of asset (real property, intangible property, personal property and household goods) determines the best valuation method to use.

Methods for Valuing Real Estate

1. Market Analysis

With a market analysis, a real estate agent compares current values of comparable properties to yours to determine the market value. This is usually done for free or for a small fee. Keep in mind that the market analysis just gives you a range of value that the realtor would list the house for, which is not necessarily the amount it will sell for. A market analysis is usally highter than an appraisal. Make sure the realtor is someone the parties trust so there’s confidence in the value. Of course, the market value can be more accurate than an appraisal because the realtor will look at what needs to be done to the house to get it to the desired sale price. An appraisal may not do that.

2. Appraisal

With an appraisal, a certified appraiser is hired to perform an analysis. An appraisal is the most accurate value generally. If you have commercial property or some sort of rental property building like a multi-tenant building, you will probably need an actual appraisal to value those investments. Do not rely on a market analysis with commercial property. With any property, keep in mind that appraisals are not always accurate, especially with the market going up. Appraisal values look at what houses sold for, not what they are currently selling for. Also, the appraiser isn’t necessarily looking at the condition of house so a lot of work may be needed to get to that sale price.

3. Property Tax Value

Prior to 2008, property tax value was never used to value real estate because it was far too low. After 2008, sometimes property tax value was too high. At this point, property tax value is not the worst way to value property, but if you do it for one piece of real estate, you should use it to value all property so values are uniform.

4. Online Sources

Websites like Zillow and Trulia should not be considered entirely reliable, but they are a starting point. If both sides have real estate they are coming into the marriage with, the Zillow value would be more reliable if both parties uses that source. Again, whenever possible try to use the same method of valuation.

When it comes to valuing assets, there are several different valuation methods available, but the most important thing is being consistent so the valuation of all property is uniform. You don’t want one spouse using appraisals and the other spouse using the property tax value for their property valuation. If you use an appraisal for one spouse’s real estate, get appraisals for all.

Business Valuations

Factors

When valuing a business, consider these factors:

• Nature of the business and the history of its enterprises since the beginning
• General economic outlook for the business as well as the outlook in the specific industry
• Valuation of tangible assets
• Potential earning capacity of the business as well as its ability to pay a fair return on investment
• Actual dividends paid or ability to pay dividends
• Value of intangible assets like goodwill
• The size of the company or block of stock being valued
• Market data on similar businesses; including actual sales and offerings

Problems Valuing Family Businesses

Family business assets can be challenging to value. They are notorious for bad record-keeping. One example is the gifting of assets as part of estate planning. Family members can also be uncooperative and reluctant to disclose what they consider private family matters. Despite these challenges, it’s important to do your very best in determining the value. The way you value a business is really the same no matter what find of business it is. Often, the business is the most valuable asset that the parties have. You don’t want the book value; you want full market value, which is the price a hypothetical willing buyer and a hypothetical willing seller acting at arm’s length, and both acting voluntarily would pay.

If you need to value property that is not real estate, sometimes an account will be able to provide information on valuation in businesses, especially value of inventory. In other instances, there may not even be an accountant and the business may have a very informal record-keeping system. There are also companies who handle valuation of businesses in cases of dissolutions—be they as a result of divorce or the ending of the business relationship. It may be necessary to hire a firm to help you get an accurate valuation.

Other Valuation Issues

• Stock options are hard to value. Even if stocks aren’t fully vested, they still have value. Even if they are underwater with a zero value, you need to include that in your financial disclosure. These things have a value and may eventually be something that can be exercised and used.
• Retirement assets. A defined contribution plan is easy to value because it’s an individual account for each employee and benefits are based solely on the amount the EE has put in. 401k 403b, IRA, etc.
• Defined benefit plans, however, are more difficult to value. Pension or annuity are based on the time the employee works for a company. You get a statement with a monthly amount telling you how much you’ll get a month depending on how old you are when you retire. The longer you work there, the more that number increases. In order to get an accurate value on a defined benefit plan, it would need to be valued by an actuary. There is software for inputting the numbers to get a value, but those may not be very accurate. That being said it isn’t required or even common to hire an actuary for valuing a defined benefit plan as they may be more art than science for the purpose of a prenup. It is acceptable to attach the client’s statements. That way you will have a snapshot of what it was worth at the time of marriage.
• Life insurance policies. Whole life policies often have a cash benefit. Sometimes policies started when the party was a child by a family member as an investment. Get all documents and exchange them. Life insurance through employers are usually term policies, but some companies have cash value life insurance policies, especially on the owners. You’ll need to find out what the situation is for that business by looking at all of the life insurance policies and disclosure cash benefit.
• Personal property. Items of personal property, including furnishings, tools, jewelry, equipment, and antiques must be disclosed and valued. There are professional "pickers" who do personal property appraisals (ex. houseful of antiques, barn full of equipment and tools). They will need to do a complete inventory and provide an accurate value. For jewelry, see a jeweler. If any valuation has been done for insurance purposes, include that information as well.
• Vehicles. The value of cars, boats, ATVs, motorcycles. Everyday cards are usually good enough for Kelly blue book or NADA. Collector cars are hard. Someone might have put $60,000 refurbishing a car, but can’t get it back out. Get a bid from a collector car dealer. The same is true with boats and RVs. Valuation websites like Facebook marketplace and Craig’s List can be used for comparison. With club memberships, look at what shares have sold for over the last few years to determine the value of the membership. For some items, you may need to go to local sports dealer for the trade-in value.

Tips for Saving Money

Financial experts tend to have lower hourly rates than lawyers and can also usually work faster than an attorney. Additionally, they can also lend credibility to the data created. You'll save money using a neutral financial experts when parties can agree on who to use. However, make sure it is a mutual decision and the CPA or other person selected is actually neutral. Otherwise, if you end up in court, one side may argue that the expert wasn't neutral and has arrived at an unfair value.