Using an appraiser in a high-asset divorce

When couples face the end of their marriage, one great concern may be the division of their assets. Utah is an equitable distribution state. That is, the court is not bound to divide joint assets equally. Instead, the court can divide the couple’s assets based on what the court determines to be fair and equitable. The court may rely on factors such as marriage duration, income/property when married, age and health, value of things lost (such as health insurance), alimony, contributions, liquid versus nonliquid assets, tax consequences, and wastefulness.

Using a professional appraiser to value assets can aid both the court and the parties by providing a reliable basis for dividing those+ assets.

The basics of the appraiser’s job

In virtually every divorce where one or both parties retains an appraiser, the appraiser is responsible for determining the fair market value of the couple’s assets.

Different assets may be valued in different ways. The asset that an appraiser most commonly values is the family home. A closely-held business may also be frequently appraised during divorce. The techniques for valuing these kinds of assets are well-settled. However, valuing unique assets, such as works of art or antiques, usually requires the services of an expert of the item being valued.

Valuing real estate

Because real estate is the asset most commonly valued by appraisers, a summary of the mechanics of appraising real property can guide how an appraiser may value other assets.

All reputable appraisers follow the Uniform Standards of Professional Appraisal Practice (USPAP). These standards prescribe the methods that appraisers must follow in determining a property’s fair market value.

For real estate, appraisers generally use three approaches to value property:

1. Cost Approach: This is an estimate of the cost of rebuilding the property to serve its current use. This approach does not work well for residences because the natural inflation in the real estate market will produce a value estimate that far exceeds the cost to reconstruct the property.
2. Sales Comparison Approach: In this approach, the appraiser uses a thorough and careful inspection of the property to search for recent property transactions involving similar properties to arrive at an estimate of fair market value.
3. Income Approach: This rarely works for homes that are strictly residential. If a couple owns one or more rental properties, the appraiser can use the income approach to estimate the income that a property may produce over time. This income stream can then be discounted to present value to give a reliable estimate of fair market value.

If an appraiser uses more than one approach to value, the values must be reconciled to provide a single estimate of fair market value.