Valuations in the Family Court
In cases in the Family Court involving property, one of the first things your lawyer will ask you is to help draw up a list of assets and liabilities.
You are likely to be handed, and asked to help fill out, a document which lists assets and liabilities under various headings such as:
- real estate;
- motor vehicles;
- business and partnerships;
- bank accounts;
- furniture and contents;
You will also be asked to list liabilities such as:
- credit card;
- personal loan;
- outstanding tax.
A frequent question I am asked is, “How do I know what the values are?” or “What value do I use?”
For assets such as bank accounts, up-to-date bank statements establish the value. For other assets and property such as real estate, shares, motor vehicles, businesses the value is “market value”. Market value is defined as being “the estimated amount for which an asset or liability should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion”.
In more straight forward language, market value is what someone is prepared to pay for it.
It is not insured value or replacement value. It is what someone acting knowledgeably, prudently and without compulsion is prepared to pay.
With real estate, we usually recommend a good starting point is to get an appraisal. Real estate agents will usually do an appraisal for free. An average of two or three appraisals will give a reasonable value as a starting point. If a dispute arises about the value as provided by appraisals, the solution is to obtain a valuation from a licenced valuer. The licenced valuation is based upon the internationally recognised definition set out above.
What is an appraisal? An appraisal is what you get when you ask a real estate agent what your property is worth. It is what he thinks you might be able to get on the market if you list it with him. It will be forward looking with the thought of listing it in say three months’ time and selling it sometime after that. So the direction the market is moving will make a big difference. An upward moving market will tend to lift the value of the appraisals. The outcome might also be influenced by the desire to motivate you to sell and to list it with a particular agent. So it is not uncommon for an appraisal to be relatively high.
An appraisal is not a proper valuation. If there is a dispute as to valuation an appraisal will not be accepted by the Court. A Court will require a valuation by a licenced valuer.
Valuations for motor vehicles can be researched on the “Red Book” website. You enter the make, model and year of manufacture of the vehicle into the search engine and whether it is in good, medium or poor condition. A “Red Book” valuation like an appraisal is a good starting point. If there is a dispute there are experienced motor vehicle valuers who will do a valuation for a fee.
There are several valuers of furniture, household contents and collectibles in Perth who regularly provide valuations for Court proceedings. These valuations can be done fairly quickly and inexpensively.
Jewellery valuations are often disappointing. The market value of jewellery is less than what it cost to buy or what it was insured for. Valuers often say that a diamond ring, for example, may have a market value of 25% or 30% less than what you paid for it.
Frequently Family Court cases become complicated by disagreements over the value of interests in private companies, or assets held by companies or family trusts. Accountants experienced in valuing various types of businesses, whether they be partnerships or companies, will sometimes disagree as to how the business should be valued.
In some situations, a first step is to obtain a quick and inexpensive valuation often called a “back of an envelope valuation” based on the last few years’ financial returns and some basic information about the company or business. A “back of an envelope valuation” may result in an agreement about value or it may highlight the need for a more detailed valuation to be undertaken. A detailed valuation can be very expensive, sometimes in the tens of thousands of dollars whereas you might be able to commission a “back of an envelope valuation” for as little as $1,000.
What are the assets and liabilities that make up the matrimonial assets and their value is a basic starting point.