How to Determine the Value of Marital Real Estate in Divorce
Since California is a community property state, married couples and registered domestic partners are presumed to have equal shares in community property. Should they later divorce, then they each get half of the marital or community property.
So how does this work out when real estate is involved? How does the court divide real estate so that each party gets an equitable portion of the community property?
Obviously, before you can divide anything, you must first determine its value.
So before any real estate that is considered community or marital property can be divided between the parties in a straight sale or by alternative division, there has to be a determination of the value of the property or properties in question.
California courts utilize three valuation methods in order to determine the value of marital real property:
The market value of the property can be determined in one of two ways:
- By using a sale price of the subject property, if such sale or contract to sell and purchase of the property or a portion thereof was made freely and in good faith, and within a reasonable time from the valuation; or
- By using the sale price of a comparable property, where the comparable property was located near the subject property and is sufficiently alike in character, size and in the improvements on the property to make them comparable, and where the sale was made near in time to the date of the valuation.
Rental value refers to any rent and lease terms that included the subject property that is in effect at or near the time of valuation. This is taken into consideration when relevant to the property in question, such as when the property is being rented out for a profit, by considering the capitalized value of a reasonable net rental value to the real property.
It must be emphasized that the capitalized value of the reasonable net rental value is different from the capitalized value of the income or profits attributable to the rental business.
The first, which is what is used in determining valuation, refers to the value of the land and of existing improvements based on the value of the capitalized net rentals, while the second, or the capitalized value of the income or profits, is attributable more to the value of the business than to the value of the property itself.
The cost approach basically considers the value or depreciation of any improvements such as houses or other buildings situated on the property.
Who Determines the Valuation of Real Property?
The issue of the valuation of real property is treated by the court as a question of fact, and any determination of value should therefore be based on evidence.
The parties may select an expert witness acceptable to both of them to determine the property’s value. If they are unable to agree on an expert, the court may select one for them.
The court may sometimes allow the parties to employ their own experts, and while the courts will listen to the evidence presented by the experts, the court will base its decision on its own independent determination, based on its appreciation of the evidence presented before it.
It has been held that a court has discretion in making an independent determination regarding the value of a marital asset. Essentially, this means that a court is not bound by the testimony or opinion of an expert witness tasked to determine the valuation of any marital real property. The court will make its own determination on the basis of all the evidence that has been presented.