If you’re experiencing a divorce or administering an estate, you will probably need to value assets. In answer to a question I’ve heard many times, there is no one “right” way to value assets. There are many different methods and I won’t try to name them all here. I want to give an idea of some common methods and most importantly, emphasize that asset valuation can be individualized. Two important considerations in deciding a valuation method are the purpose of the valuation and the expense involved versus the probable value of the asset(s).
Expert valuation. You can have an expert provide an opinion of value for pretty much any asset – real estate, businesses, antiques, collections, livestock, household furnishings, etc. Expert valuation can be costly, ranging from hundreds of dollars to many thousands of dollars, but the cost may be worth the benefit depending on the ultimate value of the asset and the importance of having an impartial expert’s opinion. Experts are frequently used in litigation, where you want to do your best to convince a judge, divorce master or other decision-maker to accept your valuation as correct. Expert valuations are not financially practical for valuing relatively low value items such as household goods.
Party’s opinion of value. A party to litigation can testify as to his or her opinion of value of his or her own property. That means you can testify in court about the value of your own property. This may work well for items such as household goods, but may not be very effective for assets such as real estate if you are disputing an expert valuation. The decision-maker must consider who has more knowledge about the value – you or an expert in the field?
Agreements. Agreements can work well both in court and out of court. If you can agree on the value of assets, but not necessarily how they should be divided, decision-makers are generally happy to accept those agreed-upon valuations and deal only with the issue of how the assets should be distributed. If you can agree on the value of assets and you’re making the decisions yourselves, outside of the litigation process, then you are one step closer to resolving the dispute.
Auctions. Auctions are frequently used to value and sell estate assets, which establishes the fair market value based on what a willing buyer will pay. Auctions can also be used in divorce actions, limiting the bidding either to just the parties or opening it to third parties.
The multitude of ways to value assets is good news. It means you’re not stuck with only one method. It is always helpful to actively decide how to value assets so it’s done in an organized, understandable way.