How COVID-19 Might Affect Property Valuations

The Importance of Valuations

Texas’ community property laws govern issues regarding the division of property upon divorce. Under Texas law, courts must perform a just and right division of community property in divorce cases. In general, community property consists of all assets that a couple acquired during their marriage. Property that does not qualify as community property is not subject to division—in particular, assets that a party acquires before the marriage, after separation, or through inheritance, are considered that spouse’s separate property.

After the court determines what assets qualify as divisible community property, they generally divide the sum of community assets—known as the “community estate.”

In Texas, the community estate is not necessarily divided equally between the parties. Instead, the courts will consider various factors to allocate assets in a way that is fair to the parties under the specific circumstances of each case.

For example, courts might award one spouse 70% of the community estate and the other spouse 30% there was evidence that the spouse sold or transferred assets for the purpose of depriving the other spouse of their value.

Therefore, courts must determine the value of community property before they can perform a just and right division of the community estate. The valuation of specific community assets is often a significant issue of contention in divorce cases as it can impact each party’s right overall to the community estate.

Issues Regarding Business Interests

The business interests of a spouse can qualify as divisible community property in a divorce. This includes any sole proprietorship, corporate ownership, or publicly traded stock that the spouse acquired during marriage.

Generally, a business that a spouse started before getting married is considered to be their separate property and not subject to a just and right division upon divorce. However, if the use of community funds or the efforts of the other spouse contributed to the appreciation of a separate property business, the increase in value might qualify as community property.

One way to determine the value of a business is through evidence of its fair market value—meaning the price a reasonable person would pay for the business if it were listed for sale. However, the fair market value of a business during an economic crisis might not reflect its true value under “normal” circumstances.

For example, the value of a cosmetology salon in the current economic climate of the COIVD-19 pandemic is probably very low. Even after taking relief efforts into account, the long-term viability of many nonessential businesses is uncertain. Thus, the fair market value of a business in the COVID-19 era may prove to be very controversial in a divorce case.

If a business is forced to close down permanently, courts might accept evidence of its “liquidation value”—the price that owners receive for selling off its specific assets, such as equipment and certain intellectual property. However, the use of liquidation value can present similar problems because the COVID-19 pandemic may also distort the current market for certain goods.

When it comes to publicly traded stock, the solution to questions of property division may be more straightforward. Unlike other business interests, shares of stock can be allocated in kind between the parties.

For example, if the community estate included four shares of the hypothetical “XYZ Corp..”, and the court determines that the an even split of the community estate is just and right, each spouse would be entitled to two shares of XYZ Corp. stock.

Valuing Real Estate

Another type of asset that may present valuation problems in a divorce is real estate. Like some businesses, appraisers take into account the fair market value of real estate when determining its value. In Texas, courts generally consider the value of the property at the time of divorce—or as close to that time as possible.

In some cases, the parties may have obtained an appraisal before the current economic climate, but before the divorce could be finalized. The decision of whether to get a reappraisal depends on the particular goals of the spouse.

For example, the parties may have agreed that one spouse would keep the marital residence and “buyout” the other’s share of the home. Such a buyout could be accomplished by giving the other party a greater share of the community estate. However, if the value of the home recently dropped due to COVID-19’s impact on the economy, the spouse who would get the house may want a reappraisal so they can renegotiate what they would give up in other community property.

Consult O’Neil Wysocki P.C. About Your Case

If you have concerns about how your rights under Texas family law may be impacted by the COVID-19 pandemic—like the division of community property, for example—you should consult an attorney for legal advice. At O’Neil Wysocki P.C., you can count on our legal team to fill you in on how current events might influence your legal rights.

Reach out to O’Neil Wysocki P.C. at (972) 852-8000 or contact us online today.