A property settlement is an important stage after a couple separates or divorces. To ensure a fair and equitable division of assets, it is usually necessary to first establish the monetary worth of all assets, including real estate, personal belongings, investments, and businesses. Given the complexities involved in a valuation of property, this can be a particularly challenging step in the process of reaching a property settlement.
Legal framework
The legal framework governing property settlements in Australia is enshrined in the Family Law Act 1975, which outlines the principles of asset division after the breakdown of a marriage or de facto relationship. Separating couples can use these principles to guide them when reaching a private agreement about a property settlement. If a private agreement cannot be reached, then separating couples can turn to the Federal Circuit and Family Court of Australia (or the Family Court of Western Australia) to ensure a just and equitable distribution of property.
Regardless of whether a former couple is dividing their property privately or before the court, the first step in this process is for the parties to agree on the property “pool”. This is usually a spreadsheet that lists the assets and debts of each person, including the current value of each asset and the balance due on each debt. The total value of the pool is the total of the assets less the total of the debts. Once the value of the pool has been established, consideration should be given to how this pool should be divided between the parties. In determining this division, consideration should be given to the contributions of both parties in acquiring the assets, and the future needs of each person.
Agreed value
The value of most assets can usually be agreed between the parties. Some assets have a clear value, such as balances in savings accounts or stocks that can be traded at a market price. The parties can usually agree on the value of basic household and personal items by referring to online second-hand marketplaces such as Facebook Marketplace, eBay, or Gumtree. Other assets can be valued by referring to publicly available resources. For instance, both parties are often willing to agree on the value of modern vehicles based on “Blue Book” valuations.
The situation becomes more complex when the asset is unusual (such as a vintage car, cryptocurrency, or artwork) or inherently difficult to value (such as some businesses). Parties to a separation often also disagree about the value of real estate, which is often the largest asset in the property pool of a separating couple.
Expert valuation
When the parties cannot agree on a valuation for any asset, they will usually need to obtain an expert valuation. The parties can each engage an expert to give a separate valuation, or they can agree to obtain a joint valuation through a single expert. Ideally, when a single expert is being used, the parties will jointly select and pay the expert so that both parties have confidence in the valuation.
Real estate valuation
When determining the value of real estate, parties often start by obtaining several free appraisals from local real estate agents. However, if the matter is contested, the court will generally require a report from a qualified property valuer to determine a valuation. A real estate valuer will assess the market value of a family home or investment property based on location, size, condition, and comparable sales. The property valuer will then prepare a detailed report in compliance with the Family Law Rules 2021 for filing with the court.
Business valuation
When it comes to businesses, valuations are typically given by accountants. Parties frequently rely on information from their own accountants to determine the value of a business. However, when there is disagreement, an independent forensic accountant can determine the enterprise value or equity stake through a professional analysis of financial statements, asset valuations, cash flow projections, and market trends. These types of business valuations can be expensive to obtain, so they are often only undertaken when there is serious disagreement over the value of a business.
Superannuation
An important asset that must not be overlooked during a property settlement is each person’s superannuation. Many superannuation funds are cumulative, and the current value is easily available. However, some defined benefit interest or self-managed superannuation funds are more complex and need to be valued by a specialist valuer. Valuation outcomes for superannuation can also have tax implications. It is important to seek advice from tax experts to minimise potential tax liabilities.
Disagreements over property valuations can complicate and prolong family law proceedings, leading to further costs, emotional strain, and acrimonious relationships between parties. It is important to have expert assistance when negotiating these difficult arrangements. Please contact or phone Taylor Rose on 1800 491 469 for further advice on the valuation of property in family law matters or any other legal representation.
