Understanding Property Valuation in Divorce
Before property can be divided in a divorce, both parties must know what that property is worth. While some assets have obvious values (bank accounts, for instance), many assets require professional valuation. Disagreements about value are among the most common disputes in Alberta divorces, and they can significantly impact the final division of assets.
Property valuation disputes often arise because both parties have financial incentives to advocate for particular values. The spouse keeping an asset prefers a lower value (so they owe less to equalize), while the spouse not keeping the asset prefers a higher value (so they receive more in equalization). This natural tension means professional, objective valuations are essential.
Edmonton's diverse economy means local divorces often involve complex asset valuations: oil and gas interests, agricultural land, professional practices, small businesses, and real estate in fluctuating markets. Each asset type requires different valuation approaches and expertise.
Common Property Valuation Disputes
While virtually any asset can be disputed, certain types of property are more frequently contested in divorce proceedings.
The Family Home
The family home is typically the largest single asset, and its value significantly impacts property division. Disputes about home value arise from:
- Different appraisers reaching different conclusions
- Market fluctuations between separation and trial
- Disagreements about the condition of the property
- Improvements made by one party during separation
- Deferred maintenance that one party claims reduces value
In Edmonton's real estate market, home values can vary significantly depending on neighborhood, condition, and market timing. A difference of $50,000 in valuation can mean a $25,000 difference in what one party pays or receives.
Businesses and Professional Practices
Business valuations are among the most contentious because:
- Multiple valuation methodologies exist, each producing different results
- The owner-operator spouse controls financial information
- Personal goodwill versus enterprise goodwill is often disputed
- Future growth potential is speculative
- Owner compensation can be manipulated to affect value
For professionals like doctors, lawyers, dentists, and accountants, the value of their practice often depends heavily on personal relationships with clients or patients, raising questions about whether that goodwill is a divisible matrimonial asset or the professional's personal, non-divisible attribute.
Pensions and Retirement Accounts
Pension valuation requires actuarial expertise and involves assumptions about:
- Expected retirement age
- Life expectancy
- Discount rates for present value calculations
- Future salary increases (for defined benefit plans)
- Early retirement subsidies and other plan features
Investment Portfolios
While securities have market values, disputes arise about:
- The appropriate valuation date
- Tax consequences of liquidating investments
- Unrealized capital gains adjustments
- Restricted stock or stock options
Collectibles and Personal Property
Art, antiques, jewelry, vehicles, and collections can have significant value but are difficult to value precisely:
- Insurance values often differ from market values
- Replacement cost differs from resale value
- Condition assessments can be subjective
- Markets for specialized items can be thin
The Valuation Date in Alberta
One of the most important and often contested issues in property division is the valuation date. In Alberta, under the Family Property Act, property is generally valued as of the date of trial, not the date of separation. This is different from some other provinces and can have significant implications.
Why the Valuation Date Matters
Consider these scenarios:
- Real estate may increase or decrease in value between separation and trial (often 1-3 years)
- Investments may grow or decline significantly
- A business may improve under one spouse's management or deteriorate
- Pension values change as the member continues working
The trial date valuation rule means one spouse may benefit from or be disadvantaged by post-separation changes in value that they had no control over, or alternatively, may benefit from or be disadvantaged by their own post-separation efforts.
Exceptions and Adjustments
Courts have discretion to use different valuation dates when fairness requires. Circumstances that may justify a different date include:
- One party deliberately depleting assets post-separation
- Extraordinary efforts by one party increasing an asset's value
- Significant delay in proceedings caused by one party
- Assets that were agreed to be divided at separation
Approaches to Resolving Valuation Disputes
There are several ways to resolve disagreements about property values, each with advantages and disadvantages.
1. Joint Expert (Single Appraiser)
Both parties agree to retain a single expert whose opinion they will both accept. This approach:
- Advantages: Cost-effective (one report instead of two), faster resolution, no battle of experts
- Disadvantages: Neither party can challenge the result, you are stuck with the conclusion, less opportunity to advocate for your position
Joint experts work well for straightforward valuations where both parties trust the expert and the methodology is standard.
2. Dueling Experts (Each Party Gets Their Own)
Each party retains their own expert, who prepares a report advocating for that party's preferred value. This approach:
- Advantages: Each party has expert support for their position, more thorough examination of valuation issues, experts can critique each other's methodology
- Disadvantages: Expensive (two reports plus potential rebuttal reports), time-consuming, can lead to battle of experts at trial
This approach is common for high-value or complex assets where the stakes justify the cost.
3. Splitting the Difference
When two appraisals produce different results, parties sometimes agree to use the average. This approach:
- Advantages: Simple, creates certainty, avoids further litigation costs
- Disadvantages: May not reflect true value, rewards extreme positions
This is often a practical compromise when the difference between valuations is relatively small.
4. Court-Appointed Valuator
The court can appoint an independent expert to value the asset. This approach:
- Advantages: Perceived as neutral, court gives significant weight to the opinion
- Disadvantages: Additional cost, limited ability to challenge, adds time to proceedings
5. Letting the Court Decide
If parties cannot agree, the court will determine value based on the evidence presented. The judge may:
- Accept one expert's opinion over another's
- Adopt a value somewhere between the two opinions
- Reject both opinions and determine value based on other evidence
- Order a new valuation by a court-appointed expert
Business Valuation Methods
Business valuations typically use one or more of three main approaches, and disputes often center on which approach is appropriate.
Asset-Based Approach
Values the business based on its underlying assets minus liabilities. This approach typically produces the lowest value and is most appropriate for asset-heavy businesses or those being liquidated.
Income-Based Approach
Values the business based on its expected future earnings, often using a capitalization of earnings or discounted cash flow method. This approach is common for profitable going concerns.
Market-Based Approach
Values the business by comparing it to similar businesses that have sold. This approach is useful when comparable transactions exist but can be difficult for unique businesses.
Personal vs. Enterprise Goodwill
One of the most contested issues in business valuation is the distinction between personal goodwill (attributable to the individual owner's reputation and relationships) and enterprise goodwill (attributable to the business itself). In Alberta, only enterprise goodwill is typically divisible, but drawing this line is often contentious.
Real Estate Appraisal Disputes
When appraisers produce different values for the same property, understanding why helps resolve the dispute.
Common Reasons for Different Appraisals
- Different comparable sales: Appraisers may select different properties for comparison
- Different adjustments: How appraisers adjust for differences between comparable properties varies
- Condition assessment: Subjective opinions about condition and needed repairs
- Market timing: Appraisals done at different times in a changing market
- Different methodologies: Some properties can be valued multiple ways
Resolving Real Estate Disputes
Options for resolving real estate valuation disputes include:
- Having both appraisers meet to discuss and potentially reconcile differences
- Obtaining a third appraisal
- Selling the property and dividing actual proceeds
- Having one party buy out the other at an agreed price
Practical Tips for Property Valuation
- Start early: Valuations take time to prepare; starting early reduces delays
- Choose qualified experts: Ensure valuators have appropriate credentials and experience with the specific asset type
- Provide complete information: Valuations are only as good as the information provided
- Understand the methodology: Ask your expert to explain their approach so you can understand and defend it
- Consider cost vs. benefit: For lower-value assets, extensive valuation efforts may cost more than the disputed amount
- Be realistic: Understand that courts rarely adopt extreme valuations; moderate positions are more credible
Frequently Asked Questions
Can I get my own appraisal without telling my spouse?
Yes, you can obtain your own appraisal for your own information. However, if you intend to rely on it in court, you will need to disclose it. Keep in mind that appraisals obtained without access to the interior of a property (for real estate) or full financial records (for businesses) may be less accurate.
My spouse runs the business and won't provide financial information. What can I do?
You can seek court orders requiring disclosure of financial records. Failure to comply can result in adverse inferences (the court assuming the information would have been unfavorable) or costs consequences. Your valuator can also identify red flags suggesting hidden value.
What if the value changes dramatically between now and trial?
Since Alberta uses trial date valuation, you bear the risk of value changes unless you can negotiate a different valuation date or obtain interim orders freezing certain assets. In rapidly changing markets, this is a significant consideration.
Do I have to pay for half of my spouse's expert?
Not necessarily. Each party typically pays for their own experts. For joint experts, costs are usually shared. Courts can order one party to contribute to the other's expert costs in some circumstances, particularly where there's a significant income disparity.
Can we just agree on values without getting appraisals?
Yes, if you both agree on values, the court will generally accept your agreement. However, be cautious about agreeing to values without professional advice, as you may be giving up significant value. Independent legal advice is recommended before finalizing any property division.