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Valuing Commercial Property For Divorce Purposes

Valuing Commercial Property for Divorce Purposes

By David L. Duff of Duff & Kronfeld, P.C. posted in Family Law on Friday, May 12, 2017.

Fact Pattern . . . Kristin and Tom were married in 1995. In 2011, Tom and his college roommate, Bill, formed “T&B, LLC,” for the purposes of buying an office building in Fairfax. Throughout the years, tenants came and went; however, the building consistently averaged a rental rate of 80+%. Tom realized an average income from the LLC, for the past ten (10) years, of $400,000. Kristin and Tom began experiencing marital difficulties; separated from each other in July of 2016; and, are proceeding toward a divorce.

Quere . . . How is Kristin’s interest in the office building determined?

Analysis . . . The office building is not owned by Tom; therefore, Kristin has no legal nor equitable interest in the office building itself. However, Tom is a 50% owner of the business entity that does own the office building; and, Virginia’s equitable distribution scheme grants Kristin a share of her husband’s interest in T&B, LLC.

Determining the value of Tom’s interest in “T&B, LLC” is a two-step process. Initially, a commercial real estate appraiser needs to be hired to value the land and building. This is a far more complex process than simply appraising a residence, as the commercial appraiser will have to analyze the leases, the rental situation, the customary expenses, the net cashflow, and a myriad of other matters, in addition to the valuing of the building and land itself.

After the value of the commercial, rental building has been determined, a business valuator will need to be hired to review and analyze the books and records of the LLC, its past history, and future projections, in order to provide an expert opinion as to the value of “T&B, LLC.” Since Tom shares equal ownership of the business with Bill, the value of his interest is 50% of the total value of the LLC. Under Virginia’s equitable distribution law, Kristin may pursue a claim for up to one-half (½) of Tom’s interest.

If you are involved in a divorce situation that includes a commercial asset, contact one of the attorneys at Duff Kronfeld & Marquardt P.C. for a complimentary, 30-minute telephone consultation at (703) 591-7475.

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