Fair market value vs. Intrinsic value: Which one to use?

I received a question from a client today asking how the court would determine the value of the piece of property in the community estate. Often times, the parties will litigate over the value of a piece of property, so it is important to know how, in the absence of an agreement, the court will determine a property’s value.

As a general rule, property is valued according to its fair market value as of the date the marriage is dissolved. Texas courts have routinely defined fair market value as the price the property will bring when it is offered for sale for one who desires, but does not need to, sell, and is bought by a person who desires, but is not required to, buy.

If a piece of property doesn’t have a fair market value, the property can be valued using its intrinsic value. The intrinsic value of property is the actual monetary value of the property’s use to the owner, excluding any fanciful or sentimental consideration. In determining intrinsic value, the fact finder cannot consider any evidence of the property’s fair market value, but can consider the property’s original purchase price, its replacement cost, its uses, and any other facts that might shed light on its intrinsic value.

In sum, the majority of the time the court will determine value by using the fair market value approach at the time the divorce is granted. Obviously parties frequently have differing opinions as to property values, but using the fair market value approach is a relatively objective means to obtaining a value.

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