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Methods for Valuing Complex Assets in High-Net-Worth Divorces

As your net worth increases, so does the likelihood that you own complex assets. There are many reasons why property may be considered complex, but they all have the same effect if you choose to end your marriage: they make asset division more complicated.

However, complications do not necessarily mean more stress for you. If you work with a skilled high-net-worth divorce attorney, they can help you appraise these assets and find an equitable distribution for your divorce settlement. Here’s what you should know about how these items are valued and divided.

What Makes an Asset Complex?

Under California law, couples are required to divide the value of their joint property equally when they divorce. However, they aren’t obligated to split ownership of each asset 50/50. This is the root of why certain types of assets are considered complex during a divorce. If spouses want to split the value of their property equally but don’t want to share ownership of specific assets, they need to determine the fair value of their entire estate. It is more difficult to accomplish this for certain property types, which is why they are considered “complex.”

There are several reasons why valuing and dividing certain items may be complicated, including:

  • Ownership of the asset is commingled. If an item has both community and separate property components, the specific percentages of community interest must be determined to divide its value fairly. 
  • The asset hasn’t fully vested yet. Unvested stocks or retirement funds cannot be sold and are not yet technically the couple’s property. Any unvested value may be forfeited if the person earning them leaves their employer. This makes determining their unvested value more complex. 
  • The account’s value is contingent upon one spouse’s behavior. Assets like stock options, businesses, and intellectual property often have value only if the owner continues to maintain them, complicating their valuation. 
  • The item’s value on the open market is difficult to determine. High-value or rare property like companies, intellectual property, luxury real estate, antiques, and art collections all carry significant worth. However, that worth may only be realized once the item is sold. If nothing similar has been recently and publicly traded and the owners do not want to sell the article, it may require a professional appraisal. 

More complicated assets may face several of these issues at once. Some of the most common examples of property that requires more care and attention to detail include:

  • Restricted stock units (RSUs)
  • Employee stock options (ESOs)
  • Pensions and unvested retirement benefits
  • High-value real estate:
  • Collections
  • Businesses
  • Intellectual property

The most effective way to value these items for divorce asset division is to work with a skilled high-net-worth divorce attorney and professional appraisers. These experts will work to ensure your estate is correctly valued and divided according to California law. 

Appraisal Methods for Complex Assets

When you work with the experts, they will use the appropriate tools and techniques to identify the worth of your property. Let’s look at some of the most frequently used methods of appraising common complex property.

Valuing Private Businesses

Private companies are not publicly traded, so finding their value takes work. A few of the many possible valuation methods include:

  • Comparing IPOs: If a similar business in a similar market has recently gone public, an appraiser can use the results of its initial public offering (IPO) to estimate your company’s worth.
  • Times revenue: The appraiser may multiply your company’s revenues by a standard multiplier for your industry to determine what it will be worth over time. 
  • Liquidation value: The fair market value of all of a company’s assets is calculated, and then the current liabilities are subtracted from that amount to achieve the company’s worth if it is liquidated. 

Valuing Intellectual Property

Intellectual property (IP) is intangible and unique by definition. The most common ways to value IP in divorce include:

  • Replication cost: This is calculated by determining how much it would cost to replicate the IP and how long it would take to create something similarly successful. 
  • Discounted cash flows: If the IP currently generates cash flows through royalties or other sales, these cash flows are multiplied by the assumed lifespan of the IP and then discounted to account for inflation. 
  • Market price: If the owner has received offers to purchase the IP or if similar IPs have been sold publicly, it may be possible to calculate how much it would be worth on the open market. 

Appraising Luxury Real Estate

While real estate appraisal is overall well established, luxury or unique properties can pose unusual complications. The most common method for appraising real estate is comparing the property to similar homes recently sold. However, luxury homes may not be directly comparable to other properties sold nearby. If that’s the case, the house may be appraised using the cost approach, where its value is based on the cost of building an identical structure on that plot of land. 

Dividing Unvested Assets 

Any asset that vests based on one person’s continued employment or other behavior may be subject to California’s Time Value Formula. This formula determines how much interest the community has in the asset. The couple must then decide whether to divide it based on its value if it vested today or to delay division until the assets fully vest. 

Talk to Expert High-Net-Worth Divorce Lawyers in California

The most effective valuation methods for complex assets depend on your circumstances and preferences for the property. If you’re preparing for a high-net-worth divorce in California, we encourage you to schedule your consultation with the skilled family law attorneys at Kaspar & Lugay LLP. We have decades of experience assisting clients with high-asset divorces in Marin County, Contra Costa County, Napa County, Santa Clara County, and San Diego. We can help you divide your marital property fairly with less stress and fewer complications.