In this two-part blog post, we explain how to divide assets when separating. This week, we look at the process of valuing your "real property", (houses, apartments, factories, shops and vacant land), "personal property" (like cars, shares, furniture and businesses) and superannuation.
In part 2, we look at how the value of your assets is typically divided when a marriage or de-facto relationship ends.
How to divide your property when separating
The first step in dividing up assets at the end of a relationship is to agree the value for your assets.
For most of our clients, their greatest financial asset is the family home and any other real estate they may have invested in – like holiday homes, investment properties, land or business premises.
This type of asset is referred to as "real property" by lawyers.
It’s therefore important to understand how the law treats this asset when there is a relationship breakdown.
The law looks at the “equity” of the parties in the house or other real property. Equity simply means the “current market value", less any mortgage or loan secured over it.
For example, if your house is worth $750,000 –
Less mortgage $200,000
Equity = $550,000
1. Determining the value of real-estate property
People will often go to the most recent council rates notice to determine the current market value of their property.
However, that’s not really a good guide, as the valuation might be a couple of years old and not reflect the true state of the real estate market in your area, especially in times of rapidly rising values.
A better way to find out what the house is worth is to contact a couple of local real estate agents. Get them to come to the property (don’t have them just drive by – such “valuations” are useless), show them through, and point out any defects – termites, settling of foundations. The agents will give you an estimate of the market value, say, $680,00 to $770,000.
If you average the estimates of the two agents, that will give you a reasonable guide as to the property’s value. These are called "market estimates" or "appraisals."
If your former partner doesn’t agree with the agent appraisals, they can get their own agents to do the same.
If you still can’t agree, an expert property valuer can be engaged to prepare a sworn property valuation, usually at the joint expense of you and your former partner. They will thoroughly examine the property, check out the recent sales in the area and provide a definite figure (say, $760,000 in the above example) as to the value.
If your case ends up in court, the judge will accept the sworn property valuation rather than council rates or agent appraisals.
2. Determining the value of your personal property
This is usually easier to value, especially if it consists of cash, money in the bank, shares or furniture. It can be a bit more complicated if a business or company is involved.
The value of shares in companies listed on the Australian Stock Exchange can be easily obtained from the daily listings in The Age or The Australian.
Valuing furniture and jewellery
With furniture (which the law calls “chattels”), people often think it’s valued at the figure it’s insured for, or what it cost to buy, or how much you would pay for a new one. None of those are correct.
Again, it’s the current market value – what you would get if you put all the furniture – beds, couches, tables, TVs, fridges, out on Saturday morning and had a garage sale. The usual figure for a house full of furniture is around $5,000 to $15,000.
The same applies to jewellery. If you take it to a jeweller, they will give you the insurance value. Rather, ask them how much they will pay you to buy the items. That will almost certainly be a much lower figure.
Valuing a business or a company
Generally, a tradesman’s (plumber, builder, carpenter) business will not have any value if they are a sole trader, relying on their day-to-day work. Their tools of trade are not normally included in the list of assets unless they include machinery.
The position is different if the tradesman has a viable, ongoing business or company, with employees and government and/or private contracts. Then it’s worth getting the business or company valued. This can be undertaken by an independent accountant (not the family’s one), preferably an experienced business valuer, who will look at the financial records, the terms of any leases for a factory and machinery.
These valuers are usually jointly appointed by the parties at their shared expense.
If the assets discussed above could be described as a horse, then superannuation is like a zebra - similar but different.
The value of your superannuation can be easily determined from your superannuation fund statements.
Once there is an agreed value for all of your net assets (known as your "asset pool"), the process of dividing these up can then commence. Next week’s blog post will cover this topic.
In the meantime, remember, every one’s situation is different.
That is why it is so important to consult one of our experienced and supportive family lawyers about these issues well before you agree anything with your ex-partner.
Give us a call on 0435 9044 to book an appointment.