Contrary to popular belief, Texas Courts are not required to divide the community property equally between the parties. Instead, the Court is required to divide the estate in a manner it deems “just and right, having due regard for the rights of each party and any children of the marriage.” Although most court-ordered property divisions are relatively close to 50/50, they are not required to be.
In order to decide how to divide the property in a just and right manner, you need to know what the assets are worth. Some assets, like bank accounts, are easy. A checking account with $5,000 in it should be worth $5,000. Other financial assets, such as retirement accounts are trickier. Just because a retirement account has $100,000 in it does not mean it is necessarily worth that. To liquidate the $100,000 account, you would likely incur a 10% penalty as well as pay taxes on the funds. If your tax rate is 30 percent, you can certainly argue the retirement account is worth $60,000 ($100,000 less $10,000 penalty less $30,000 income taxes).
Assets in a Texas divorce are appraised according to fair market value. However, if the asset has no fair market value, it can be valued using its’ intrinsic value. According to the Texas Pattern Jury Charges, as well as case law, fair market value means “the amount that would be paid in cash by a willing buyer who desires to buy, but is not required to buy, to a willing seller who desires to sell, but is under no necessity of selling.” Some courts have added the factor that the fair market value is the highest price that the property would sell.
At the final hearing, a party must present evidence of fair market value of the asset. This can be in the form of documentary evidence, lay witness testimony, or expert testimony.
Typically, documentary evidence is conclusive to prove the value of financial assets, as described above. With assets that are more difficult to value, such as furniture or household items, it can also be helpful to put forward documentary evidence to show the purchase price of the asset (although, with depreciation, it will probably be worth significantly less).
The owner of marital property can also testify as to his or her opinion of its’ value, within certain limitations. For example, the owner must show some familiarity with the property’s market value. This is probably the least reliable evidence of value, but sometimes it is all you have.
For many types of assets, expert testimony is needed. For example, if one of the spouses owns a business, expert testimony is probably needed to provide the most reliable evidence. Also, if the parties own a home, expert testimony from a real estate appraiser is needed. Certainly, expert testimony can be expensive. However, it can be well worth it. Experts use several different methods in valuing businesses and real estate, and we will cover those in a later post.
If valuation has become an issue in your divorce, contact me by phone at 214-526-5234 or by email at email@example.com.