Whether a divorcing couple tries to settle asset division on their own—directly, through attorneys, or via mediation—or whether dividing marital assets is left to the court to decide, the process of dividing marital assets involves three steps. This is the second of three posts which explore this 3-step process for asset division in divorce.
Step 1, discussed in the previous post, is identifying what is marital and what is non marital. Step 2 in division of marital assets is determining the value of all assets, both marital and non marital. Why determine the value of non marital assets, too? This question will be taken up in the next post.
The importance of accurately valuing marital and non marital assets cannot be overstated. Uncertainty over value is often a big obstacle to settlement.
Value Defined
“Value,” under Maryland law, means “fair market value,” the amount at which property changes hands between a willing buyer and a willing seller. “Fair market value” is not appraised worth minus taxes. Taxes, like costs of sale, may (or may not!) be considered in Step 3 of the 3-step process.
Although Maryland law is clear that property in a marriage is valued by the court as of date of divorce, not date of separation, there are practical limits to this principle and parties who settle out of court may use a different date (for example, date of separation or date of settlement).
Maryland courts recognize that “valuation is not an exact science.” In a divorce proceeding, a trial judge may use a wide variety of methods to calculate the value of marital and non marital property, and can use any method appropriate to the circumstances.
The owner’s opinion of property value is usually admissible as evidence, not because the owner holds title, but because ordinarily the owner knows their property well and is familiar with its value. However, if an owner’s knowledge of market price or condition of property is limited, the owner’s opinion may be inadmissible.
Some marital assets are easy to value. Our Tools and Resources page includes many useful links for this purpose.
Statements and Appraisals
With little difficulty, parties can collect current, up-to-date statements for bank, investment, IRA and 401(k) accounts, and for other assets with cash value. If there are concerns about tracing non marital property claims, or about whether funds have been squandered or siphoned off, five to ten years of statements can be obtained easily from many financial institutions; even older, archived records can often be located upon request.
The value of real property (land, homes, buildings) is best determined by a real estate appraiser, although some parties choose to use a real estate agent’s market analysis for this. Occasionally, someone suggests using the tax assessment value, but tax assessments are so often off the mark that Maryland courts actually prohibit their use in court to prove value of property.
The fair market value of motor vehicles, boats, and trailers are often estimated using popular websites—or they may be appraised by an expert personal property appraiser.
Personal belongings—household furnishings, antiques, jewelry, artwork, costly recreational equipment—can also be appraised by an expert personal property appraiser, unless parties agree on value, or settle on some other means to divide them up. These personal belongings are appraised “as is,” not at replacement value.
Pension benefits accrued in government-sponsored retirement plans, many union worker plans, and the like—as distinct from IRA, 401(k), or similar accounts—are often more difficult to value. Read more about this topic in our FAQs: select Retirement Assets from the dropdown menu.
Business valuation is far more complex than valuation of most other assets, so courts usually require expert testimony to determine a business’s value, including goodwill. Sometimes divorcing spouses agree to have one valuation expert appraise a business interest; sometimes each hires their own. Where there are two experts, the trial judge must decide which opinion, if any, to accept.
Marital Debt
A marital debt is a debt directly traceable to acquisition of specific property. Marital debt also includes monies borrowed to make improvements to marital property—whether or not borrowed funds that were used ultimately enhance the property’s value. The marital property value of an asset is adjusted downward by the amount of outstanding marital debt. If a marital asset is worth less than outstanding debt incurred in acquiring or improving it, the value of that item is reduced to zero; the excess debt is not transferable to reduce the net value of any other item of marital property.
Most credit card debt, which is not directly traceable to acquisition of specific marital property, is not marital debt.
It’s Tedious, But It’s Worth It
The task of valuing all property—marital and non marital—can be daunting, time-consuming, and frustrating, especially when one spouse, or both, do not cooperate with transparency and accuracy. However, with the aid of experienced counsel, and other professionals as needed (for example, accountants and appraisers), this key step in the 3-step process can be completed successfully.
