Dallas Divorce Law Blog by Michelle O'Neil

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.

The State Bar of Texas Family Law section plans to ask lawmakers to repeal a portion of the Texas Family Code governing reimbursement to a spouse for community property spent on the separate real property of the other spouse.  Critics of the law say it leaves too little discretion to trial judges to decide redistribution of assets in divorces.  Most agree that the 2002 law was a good idea that proved too difficult in practice.

Divorce has become the most recent victim of plummeting home values, says the New York Times in its article Breaking Up Is Harder To Do After Housing Fall.  Nearly 20% of homes are now worth less than the mortgages owed on them. Where couples once fought over who would keep the house, they now bicker over who will continue to pay for it.  As a result, divorce has become more complicated and often more expensive with lower prospects for a money outcome.  Some divorce lawyers say that some clients are electing to stay together because there are few assets left to help them start over.

In a normal economy, couples typically build equity in their homes, then divide that equity in a divorce, either after selling the house or with one partner buying out the other partner’s share.  But now, more couples own houses that neither spouse can afford to maintain and they cannot sell for what they owe. 

In the Dallas Texas divorce arena, we have been spared the worst of the housing bust, but our house values are, by most accounts, remaining stagnant.  That still creates the problems mentioned in the article in that houses are not the major cash-cow asset they once were.