In equitably dividing marital property the South Carolina family court judge has three tasks: 1) identifying which property of the parties is “marital” and which is “non marital”; 2) valuing each item of marital and non marital property and; 3) deciding how to equitably divide the marital property.
I am amazed at the reflex response of “let’s hire an appraiser” to value marital property. Even more amazing if the use of dueling appraisers to contest the “fair market value” of marital property. “Fair market value is the price which a willing buyer will pay a willing seller, neither being under compulsion to buy or sell….” Mazloom v. Mazloom, 382 S.C. 307, 675 S.E.2d 746, 753 (Ct.App. 2009); see also Reid v. Reid, 280 S.C. 367, 312 S.E.2d 724, 727 (Ct.App. 1984) (“A property’s ‘fair market value’ is the amount of money which a purchaser willing but not obligated to buy the property would pay an owner willing but not obligated to sell it, taking into account all uses to which the property is adapted and might in reason be applied.”). Certain property–primarily property that the court must realistically award to only one party–may require appraisals to establish its “fair market value.” Businesses run by one party, property co-owned by third parties and non marital property fall into this category. However, for pretty much any property in which the family court can realistically award it to either party, appraisers are largely an active hindrance to determining that property’s “fair market value”: instead the court should award it to the party that values it more. Doing so is the most logical and economically productive method (in the sense of maximizing utility) of valuing and dividing marital property.
A common problem in doing this is getting one or both parties to give a realistic response to the determination of a property’s “fair market value.” Often parties will undervalue property they want to keep and overvalue property they want their spouse to keep. Getting them to provide an answer to the question, “at what value are you indifferent to whether you keep this property or your spouse keeps this property?,” can be difficult because their answers may be evasive. The following script (with common responses) helps:
Q. At what value are you indifferent to whether you keep the property or your spouse keeps the property?
A. I don’t want my spouse to have the property. [note the answer is non responsive]
Q. You didn’t answer my question. Again at what value are you indifferent to whether you keep the property or your spouse keeps the property?
A. But I want to keep this property. [again, non responsive]
Q. What do you think this property is worth?
A. [something much lower than your client’s valuation of the property]
Q. And you really believe that this is the “fair market value” of that property?
A. Yes.
Q. So you’d be willing to allow your spouse to keep this property at that value?
A. No.
Q. Why not?
A. Because I want to keep it.
Q. But isn’t your valuation what you consider to be the “fair market value” of this property?
A. Yes.
Q. So why aren’t you willing to allow your spouse to keep the property at what you contend is its “fair market value?”
A. Because I want to keep it.
Q. You realize that your spouse values the property at [assume substantially higher value]?
A. [doesn’t really matter]
Q. Would you be willing to keep this property at the value your spouse places on it?
A. No.
Q. Why not?
A. Because it’s not worth that much.
Q. Why not let your spouse keep the property if he or she places a higher value on it?
A. Because I want to keep it.
Q. Would you let your spouse keep this property if he or she was willing to take it at [some ridiculously high figure]?
Here the script can veer in different directions. If the other party answers yes, you have established that there is some value at which the other party would prefer your client keep the property. Work you way down until you reach a value at which the other party acknowledges indifference to keeping or letting your client keep the property. If the other party gets evasive, note that you have already established a value at which he or she is willing to let your client keep the property and a value at which he or she wants to keep the property so you are only trying to establish a value at which the other party is indifferent as to whom keeps the property.
If the other party answers no, keep upping the unrealistic valuation until you reach a point at which the other party acknowledges a value at which he or she would prefer your client keep the property. If the other party eventually acknowledges this, then go to the script in the previous paragraph (you have established a value at which that other party prefers your client keep the property). If the other party keeps saying he or she would not allow your client to keep the property at a grossly overvalued valuation, keep going until that other party answers that even if the spouse was willing to take the 2000 square foot suburban home at a valuation of $100,000,000, this party would still want the house.
If you follow this script and try to pin the other party down, one of two things will be established (possibly both): you will establish that the other party is not credible, evasive and unrealistic in the valuation of the property or you will establish an actual value at which this other party is indifferent to whether that party or your client keeps the property. You may even be able to establish who values the property more. At trial, you can then argue that the court should award the property to the person who places a higher value upon it, and value the property at the valuation acknowledged by the person who is keeping the property.
A corollary to this concept of “fair market value” can be used by one’s client in filling out financial declarations. When asked by a client how her or she should “value” a particular item, I tell the client, “put down a value at which you’re indifferent whether you keep it or your spouse keeps it.” Having a client clearly establish a valuation of property in which the client is indifferent to whether the client or the spouse keeps the property bolsters the client’s credibility, especially when the spouse is evasive or non responsive over the same issue. This does not preclude one’s client from changing the valuation later if new facts or circumstances come to light, but the valuation should also be one at which the client is indifferent as to whom is awarded the property.
As for the appraisals that so many attorneys love, I believe they are (mostly) worthless. Assume the other party presents an appraisal for a property that the party wishes to keep, with the appraisal valuing the property at $250,000.00. Further assume that my client thinks the property is worth $300,000.00. The minute I ask the other party whether he she is willing to let my client keep the house if my client values it at $275,000, the appraisal is worthless: if the other party answers yes, we have established that the house is worth more than $250,000 and the other party will probably lose the house. If the other party answers no, we have established that the other party values the property as being worth more than $275,000.00.
Often I hear other attorneys complain that the court undervalued an asset that was awarded to the other party but that attorney’s client never testified as to a value at which he or she would be willing to keep that asset. Or that attorney may complain that the court overvalued an asset that the attorney’s client got saddled with when that attorney’s client never testified as to a value at which he or she would happily part with that asset. One goal in establishing that my client (in the example above) is willing to keep the marital home at a value of $275,000.00 is to prevent the court from awarding the house to the spouse at the spouse’s low suggested value of $250,000.00. While I have never had this exact situation arise at trial, I doubt a family court judge court could award the house to the other party at a value of $250,000.00 when my client has testified as to a willingness to keep the home at a value of $275,000.00 (the court could certainly justify awarding the home to either party at a value of $275,000.00, so one must be careful in the valuation that one’s client places on an asset). Even if the court awarded the home to the other party at a $250,000.00 value, I suggest that having testimony from the other party that he or she would not part with the home for $275,000.00 coupled with my client’s testimony that he or she would keep the home at a value of $275,000.00 would be solid evidence on appeal that the court undervalued the home when it valued it at $250,000.00.
For property that the court can realistically order sold or award to either party, appraisals are only useful when the parties agree that a particular party should keep that property and neither knows what the property is worth. In that circumstance a joint appraisal can help fix value. In all other circumstances, the property should be awarded to the party who places a higher value upon it and it is the attorney’s task to force the other party to place a value on the property at which that party is indifferent as to which party keeps the property (or, failing that, establishing that the party is evasive and not credible in his or her valuation).
Absolutely brilliant observation about how self-valuing is better than appraisal.
If this were allowed to play out outside the SC courts, there would be a far, far simple approach: make the two parties bid in an “auction” of their stuff, using fictive funds from the overall division, as follows. Each party starts with the same amount of “money,” bidding against the other for house, furniture, etc. The overall total of available money keeps pace with the winning bids, so at the end you have all the parts of a solution:
1) Each winning bid for an item is that item’s fair market value, and the winner is the person who will “pay” for that item if he has sufficient funds;
2) The total of the winning bids is the total value of marital property, so each party gets half of that value to “spend”;
3) If either person’s auction “spending” exceeds his money (i.e. hi half the value), he has to “sell back” some of what he won *at the price of the last bid paid by the other party for that item*. This way no-one is ever forced to “pay” more than he or she already agreed to pay.
I’m pretty sure systems like this have been explored by economists as the theoretically optimal way to distribute resources to people who value them differently. Any way to get some common sense like this into the Courts?