What happens if you don't agree on the value of an asset?
When separating married or de facto couples begin discussing a property division, disagreements sometimes arise about ‘who receives what’. Just as often though, there can be disputes about something more fundamental: what the assets are actually worth.
Whether it's the family home, an investment property, a family business, a share portfolio or valuable personal possessions, agreeing on value for each item in the property pool is an important first step in the property settlement process.
After all, it is difficult to divide an asset pool fairly if there is no agreement about the value of individual items, and the total value/size of that property pool, to begin with. Having a complete understanding of the values of your property is crucial to working out 'who receives what' including when making or considering offers when negotiating.
Why does the value matter so much?
Before a property settlement can be negotiated or determined by the Court, the parties' individually and jointly owned assets, liabilities and financial resources need to be identified. A value is ascribed to each of them.
The value attributed to an asset can have a significant impact on the overall settlement outcome. Here are some examples why:
- A difference of $100,000 in the value of a property, for example, could affect each party's entitlement by tens of thousands of dollars.
- Decisions about whether certain property should be excluded from division between a separating couple should be carefully informed by an understanding of the value of the asset.
- A proper understanding of the worth of an asset can inform your choices about whether you will keep the asset, allow your former spouse to keep it, or seek to have it sold.
Disputes about value should not be treated as a minor issue. Reaching agreement on a reliable value for items of property often makes the remainder of the negotiations much more straightforward.
How is the value of an item of property determined?
Many separating couples agree on the value of certain assets, by using estimates. They may be informed by independent information when suggesting estimates - for example, parties may exchange real estate appraisals or review recent comparable sales of a suburb to estimate the value of real property.
Where both parties are comfortable with the estimate, the time and cost of obtaining a formal written valuation from an expert valuer may not be necessary.
However, where there is a substantial difference between the estimates of each party, or where the asset is particularly significant or complex - such as businesses or trust/company structures - relying on estimates can be unreliable. Unresolved valuation disagreements can in turn create blockages to reaching an overall agreement about the division of property.
Appraisal or valuation: what's the difference?
This is one of the most common areas of confusion.
A real estate appraisal is generally an estimate of the market value of a dwelling or commercial property provided by an agent, based on their knowledge of the local market and recent sales. While appraisals can be useful as a starting point, they are not independent expert evidence. Different agents may provide very different opinions about the same piece of real estate. An appraisal can be useful guide to begin negotiations if seeking to reach an agreed estimate for the value of a piece of real property.
A formal valuation, on the other hand, is prepared by a qualified valuer who applies recognised valuation methodologies to provide a professional opinion of the asset's current market value. Formal valuations are typically more accurate and specific, and if utilised in Court proceedings, must meet strict conditions to ensure they are impartial.
When parties genuinely disagree about value, a formal valuation is often the most reliable way to move negotiations forward and overcome different views about what an item of property is worth. It is possible to obtain formal valuations of all different kinds of assets beyond real estate – such as artwork, motor vehicles, jewellery, defined benefit superannuation and collectibles.
What is a Single Expert valuer?
Property settlement negotiations can become stuck in a stalemate if disagreements about the value of items in the pool of property to be divided are not dealt with. A common way of overcoming this is for the appointment of a single expert valuer. The name describes the purpose of the process – rather than there be competing opinions about what an item of property is worth, one person is appointed to prepare a market valuation report. The single expert's role is not to assist one party over the other, but to provide an independent assessment of the asset's value, and therefore assist both parties to resolve their property division completely.
A jointly appointed single expert can offer several advantages:
- the valuation costs are often shared between the parties
- both parties have a say on the information provided to the valuer about the asset for them to refer to in preparing a report
- only one report is required
- the risk of competing valuation evidence is reduced
- negotiations can proceed after the valuation report is issued, using a common reference point
- If obtained during Court proceedings, the single expert valuer is bound to comply with obligations and duties to the Court. An example is they must not agree to provide a report if they have a conflict of interest with one of the parties in the case. In some instances, they must also comply with guidelines issued by their industry regulator. These mechanisms enhance the integrity and reliability of the expert valuation opinion given by them.
In many cases, a properly prepared valuation from a suitably qualified expert valuer is enough to resolve the dispute and allow settlement discussions to continue.
Can I get my own valuation?
Yes, but it may not always be the most cost-effective approach.
Some people choose to obtain preliminary advice or an informal valuation before negotiations commence, so they have a better understanding of the likely value of an asset. This can be useful as a 'reality check' and can help identify whether proceeding to a formal valuation is useful to do. It can also provide a useful reference point when considering settlement offers about how the property pool should be divided.
Where separate valuers are engaged by each party, different opinions can emerge. This can increase costs and create additional areas of disagreement.
A jointly appointed single expert is often the preferred option to avoid this.
What if I think the valuation is wrong?
A valuation is an expert opinion. It is often not an exact science.
In some circumstances, there may be legitimate concerns about the experience of the expert valuer to give an opinion, the methodology used, the information relied upon in determining the value (for example, the comparable sales selected by the valuer). Further legal advice should be obtained before taking any action to dispute a formal valuation.
Being disappointed with the result is unlikely to justify rejecting an expert opinion. However, where there are legitimate concerns such as those described above, or identifiable errors in the report, there may be options available.
Obtaining legal advice early can help determine whether a challenge is likely to be worthwhile.
Who ultimately decides?
If parties cannot reach an agreement, including after a formal valuation report has been obtained, the Court can determine the value of the disputed asset.
In doing so, the Court will consider the expert evidence and any other relevant material.
This is one reason why obtaining reliable valuation evidence early in the process is so important. The stronger the valuation evidence, the easier it is to negotiate with confidence and minimise unnecessary disputes or need for Court action.
How we can help
Disagreements about the value of an asset can delay property settlement negotiations and increase legal costs if they are not dealt with appropriately. Understanding and having confidence in the values attributed to assets in a family law property adjustment (sometimes referred to as a property settlement or separation agreement) is crucial to ensuring you make informed decisions and obtain a fair and just portion of the property pool.
At Parker Coles Curtis, we help clients throughout Canberra and the surrounding region to achieve just and equitable property adjustments when their marriage or de facto relationship breaks down. Whether you have residential property, businesses, trusts, superannuation or other types of assets, we can help you make decisions about estimates of assets or to obtain the appropriate valuation evidence, negotiate effectively and work towards a timely and practical outcome of your case.
If you are separating and cannot agree on the value of an asset, our experienced family law team can provide advice tailored to your circumstances.
Contact Parker Coles Curtis on 02 5114 2660 or book an introductory chat to discuss your circumstances.