Monthly Archives: June 2009

Valuing the House

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Valuing the house can be a major issue or a minor issue. Couples have some options here.

1. Guess. Some couples just want to guess on the value and they actually agree to that. This amazes me. But, I have to admit, it is cheap. However, I worry that the guestimate is materially inaccurate.

2. Use the property tax value. Here, the market value of the house might be understated. However, I have seen some areas where the property tax value is very close to an appraised value.

3. Get a realtor to estimate the sales value. The risk here is that the realtor will provide an asking price, not a sales value. The asking price will overstate the value.

4. Get a real appraisal. This is the method I favor the most, despite the cost. I like this one best because I feel the parties will be less likely to regret the choice of valuation method if they hire an appraiser. The cost in my general area of Texas ranges from $300 to $700.

If this is a litigated case, there might be two appraisers or realtors because each party hires their own appraiser. But if this is a collaborative case, the parties hire an agreed upon neutral appraiser and agree ahead of time to accept the value. The collaborative attorneys or the collaborative neutral financial professional usually can provide a name or two of neutral appraisers.

The House

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In many families, the house is one of the two largest assets, the retirement accounts being the other. The house can be both an emotional issue and a financial issue.

There are basically four ways to deal with the house.

1. Sell the house during the divorce and split the net proceeds.
2. One person keeps the house, buying out the other. The person getting the house either keeps the house or sells it.
3. Both parties keep the house, but only one lives in the house. At the time of sale, both participate in the net proceeds.

The legal issues over transferring the title to one person are state specific. If a couple cannot simply re-title the house, they may need to refinance the house so as to get one party “off the loan”. Refinancing may be preferable when they want to have a lower monthly payment. The couple may wish to refinance the house prior to the divorce if the lower earning spouse is going to keep the house and cannot qualify for the mortgage on their own.

Cash & Bank Accounts During Divorce

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Unless one chooses a collaborative divorce, a divorce can last for several months or even years. During that time, a couple should work out how to cover the living expenses of each party and of the family.

In my experience, living expenses are easier and more pleasantly dealt with in collaborative cases, than in traditional litigated cases. In collaborative cases, the cash flow needs are a potential agenda item at every team meeting. This ensures that both parties are addressing their cash flow needs to the extent that the family finances can handle the dual households.

There are a number of ways to handle cash flow needs during a divorce.

Divide the cash up front. This process works well when both parties have similar income levels. Each deposits their paychecks into their own bank accounts (established during the divorce if necessary) and uses that cash to fund their living expenses. When one party has a greater income than the other, funds are allocated to the less monied party on a periodic basis. In collaborative cases, the two attorneys, the neutral financial professional and the couple will discuss and conclude the appropriate amount to allocate.

Allowance. This process arises when one party makes the majority or all of the income while the couple has two households. I have seen this method work and I have seen it have problems. The problems arise when the earner spouse wants to control the non-earner spouse’s spending habits. While, I understand why one party might want to control the other’s activities (although I do not condone it), this usually results in frustration and unpleasant feelings for both parties. In my experience, the allowance method works best when both parties are realistic about their cash flow needs and neither party wishes to alter the existing spending patterns of the other.

Vehicles

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The usual way couples handle the division of vehicles in a divorce is that each takes their own vehicle and the debt that is attached to that vehicle.

Start with getting the fair market value of the vehicles. You can find that on the internet at a site such as Kelley Blue Book (www.kbbcom) or NADA (www.NADAGuides.com). Be sure to value all vehicles in the same manner. Either both at trade-in or both at private sale prices. I prefer the latter.

There can be some minor complications with vehicles.

Vehicle driven by a minor. In this case, one of the parents will need to keep this vehicle titled in their name. Hopefully, the couple can come to an agreement about this. Be sure to consider that the titled owner will need to have auto insurance on the vehicle.

Vintage vehicle in the garage. Sometimes one cannot find a fair market value of a vintage vehicle because it is not truly vintage. In this case, the couple is wise to come to an arbitrary agreed upon value, allocate the vehicle to one party and move on with other decisions.

Vehicles with interesting debt. Once in a while, a couple will finance an vehicle through a second mortgage on the home. This can get sticky when one party intends to keep the vehicle and the other party intends to keep the home. In this situation, the couple needs to look for an offsetting asset. The party keeping the home (and the vehicle debt) would get an asset to offset the amount of the debt. Presumably, that party could cash out the asset and pay of the vehicle portion of the second mortgage.