Methods and challenges when valuing assets in high-asset divorce

On Behalf of | Sep 30, 2023 | Family Law

In high-asset divorces, one challenge is determining the value of assets. This task encompasses various properties, such as businesses, real estate and investments. The process of asset valuation helps ensure a fair distribution of wealth between the divorcing parties.

It requires a meticulous approach, often involving the expertise of professionals, to ensure that the division of wealth is equitable and just.

Business valuation

Valuing a business during a high-asset divorce can be particularly complex. Several methods commonly come into play.

  • Market-Based Approach: This method evaluates the business by comparing it to similar enterprises in the market. It considers factors such as revenue, profits and market trends.
  • Asset-Based Approach: Here, experts scrutinize the business’s assets and liabilities to determine value. They consider tangible assets such as property and equipment, as well as intangible assets such as patents and trademarks.
  • Income Approach: This approach assesses the business’s future income potential. It often involves a deep dive into financial statements, cash flow projections and risk assessments.

Using different methods (or even the same method), it is possible to come up with different valuations. That is part of the challenge of high-asset divorce.

Real estate valuation

The divorce rate in Pennsylvania is 2.4 per 1,000 people. Many of these divorcing couples own real estate.

The valuation of these properties, such as homes, commercial buildings or land holdings, poses its own set of challenges. One is appraisal in which licensed appraisers consider factors such as location, property condition, recent sales of comparable properties and market trends.

Assessing the value of property improvements, such as renovations or additions, can be tricky but are necessary. Of course, real estate values can fluctuate over time due to various factors, including changes in the local economy or housing market conditions.

Investment portfolio valuation

Valuing investments such as stocks, bonds and other financial assets is important. The most straightforward approach is to determine the current market value of the investments. However, this can be challenging for illiquid assets.

Different investment types require distinct valuation methods. For instance, valuing publicly traded stocks is relatively straightforward, while privately held investments demand a more intricate assessment. Valuing investments should also account for potential tax implications, as selling certain assets may result in capital gains or losses.

Challenges in asset valuation

Several challenges can arise during the asset valuation process in high-asset divorces. One is the possibility of hidden assets. It necessitates thorough investigation and forensic accounting to ensure that both sides account for all assets.

High-asset individuals may have diverse and intricate portfolios, making accurate valuation time-consuming and intricate. In many cases, experts such as appraisers, accountants and financial analysts must provide professional assessments.