In an ideal world, divorcing clients would evenly split matrimonial assets without arguing. But, as anyone familiar with the Paul McCartney/Heather Mills split can attest, there is lots of room for disagreement when it comes to valuing matrimonial assets. And, as an advisor to divorcing clients, you will need to tap outside experts to assign reasonable asset values.

“Some spouses agree on the value of just about everything,” says June Oliver, a financial divorce specialist from Oakville, Ont.-based Tax Management Centre. “But they’re a rare breed.”

That means you will need to bring in outside experts to determine the value of the couple’s home, any vacation or rental properties, their pensions and, in some cases, small businesses owned by either spouse. Other pricey items, such as artwork and jewellery, must also be appraised.

“My role is to explain why a client needs valuations,” says Eva Sachs, a certified divorce financial analyst and co-founder of Toronto-based Women in Divorce, “and then explain the implications of those valuations once the client gets them.”

Oliver and Sachs turn to outside expertise to value the three most common — and significant — assets of marriage: real estate, pensions and small businesses.

> Real Estate Appraisals.

Less complex than pension or business valuations, real estate — be it the family home, cottage or rental properties — is relatively simple to price.

“If the couple has lived in the neighbourhood for a long time and they read the newspaper and know the area well, they both might come to the conclusion that the house is worth a certain amount,” says Sachs. “However, getting a proper appraisal is the best way of determining that number.”

It’s also often the best way to proceed when the split is contentious. “If there’s a level of distrust, getting a professional appraisal could be a course of action,” says Jim Doyle, a senior financial consultant and CDFA with Investors Group Inc. in Vancouver.

While a real estate agent can tell you the price at which he or she would list the house if it was to go on the market, an appraisal is a much more detailed analysis. “Real estate agents do very general sales comparison analyses,” says Steven Coull, executive director of the Canadian National Association of Real Estate Appraisers in Coquitlam Beach, B.C. “They look at other sales in the area and come up with a price.”

A real estate appraiser, on the other hand, will conduct both a sales comparison and a cost approach analysis. (The latter involves determining the current cost of building an identical house on the identical lot, then calculating its depreciation.)

“In the case of appraisals, I advise my clients to talk to a local real estate agent and have the agent recommend an appraiser who is familiar with their neck of the woods,” says Oliver. The service generally costs between $250 to $500, depending on the home’s size, design, quality of construction and the local market.

That’s money well spent, says Coull: “It’s a much more detailed report; you get an accurate market value of the house, completed by a professional who can back up his or her opinion in court. Real estate appraisers want to make sure everything is perfectly substantiated.”

While both agents and appraisers may be considered qualified experts if the divorce goes to trial, Janis Pritchard, a collaborative lawyer with Pritchard & Co. LLP in Medicine Hat, Alta., says it’s often best to err on the side of caution. “It’s up to the judge to decide to whom to listen in his or her courtroom and whom to qualify as an expert,” she says. “A judge might listen to an experienced realtor, but most lawyers play it safe and use a certified appraiser.”

Skipping an appraisal in order to save cash can be a costly mistake, Coull adds: “Some couples might decide to use their home’s property tax assessment [instead of getting an appraisal], but the unfortunate part is that some assessments are on the money and some aren’t.”

Even an appraisal may not be the final word, however. “In some cases,” Sachs says, “people will get two or three appraisals and then choose the middle ground, because there’s no other way for them to agree.”

> Pension Valuations.

@page_break@Aside from the matrimonial home, pensions are often a couple’s most significant asset. While spouses tend to share the value of the pension that was earned during the marriage, several provinces — including British Columbia, Manitoba and Nova Scotia — have changed the terms for pension di-vision, allowing for the ex-spouse to continue to share in the value of the pension that is earned after the date of separation. Ontario is also considering adopting this system.

Although most advisors say only defined-benefit pensions, not defined-contribution or registered retirement pension plans, require valuation, Ed Burrows, president of Peterborough, Ont.-based Pension Valuators of Canada, begs to differ.

“All pensions should be valued upon marriage breakdown, whether defined-benefit, RRSPs or defined-contribution,” says Burrows, who sums up his services in a nutshell: “I determine the current value — at the date of separation — of the future pension.”

While Burrows, who has been valuing pensions for 18 years, isn’t an actuary, in most cases pension valuations are conducted by actuaries. (To find an actuary, go to www.actuaries.ca. )

While the value of a DB pension is the most complicated to calculate, Burrows notes, it can also be tricky to determine a reasonable tax allowance for RRSPs and DC plans. “Someone might pick a 20% or 25% tax rate,” he says. “And that’s rarely the right allowance. It could be out by thousands of dollars.”

Burrows charges $635 to value a standard DB pension, while valuation reports for RRSPs, DC plans and pensions of less than $10,000 cost $350. These fees are for reports only: any additional consultations are extra.

Oliver notes that some pension valuations can run as high as $3,000 or more.

Once again, calling in the experts ultimately can save money. “There are thousands of dollars involved in the valuation of a pension, and not having the right value or the right tax allowance can be very costly,” says Burrows. He points out that a proper pension valuation can save time in court and also reduce legal fees that might be incurred if lawyers argue about whether or not to have the pension valued.

“Lawyers writing back and forth can use up $635 very quickly,” he says. “It’s best to get the pension valued in the first place.”

> Small Business Valuations.

These are the most complex forms of property to value. And small businesses aren’t even always considered a matrimonial asset.

Doyle emphasizes that this is a complicated issue that clients must discuss with their lawyers. “There are conditions whereby it may be a family asset,” he says, “and other, almost similar situations, [in which] it is not.”

A variety of factors must be considered, including promises made or extended regarding the business, sources of funds invested in the business during either its start-up or its lifetime, how the income from the business is personally extended and many others.

And, as with the various types of pensions, divorce advisors say a professional small-business valuation isn’t always necessary. “A lot of small businesses are based on one spouse,” says Oliver. “So, if you take the spouse out of the picture, then the business is nothing and it may have no value. But if it’s a good solid business with several employees, it’s worth getting a valuation.”

Doyle concurs, noting that businesses vary widely in terms of their structure. “If the business is a little more complex — with several sources of income, variable streams of income, substantial inventory turnover — and a valuation is uncertain at first blush, then a formal valuation is probably the most strategic way to go.”

Chartered business valuators, a designation awarded by the Canadian Institute of Chartered Business Valuators, are most often called upon to perform valuations of small businesses. (The Toronto-based CICBV is the largest such group in Canada.) Jeannine Brooks, the president and CEO of the CICBV, says all family businesses should be valued, and notes that the cost varies depending on region, the complexity and size of the business and the degree of reporting required, among other factors. Indeed, valuations for large and complex businesses can run as high as $30,000.

Despite the costs, expert valuations can smooth the rocky road to divorce and provide clients with the basis for agreement. IE



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