Obsolescence - Divorce Encyclopedia

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Term Definition Obsolescence - one of the causes of depreciation.

Application in Divorce An impairment of desirability and usefulness caused by new inventions, design, improved production methods, or external factors that make a property less desirable and valuable, obsolescence is a consideration in the market value of an asset. For example, in the 1970s, the coming of computerized cold-type printing made hot-metal printing obsolete, and greatly reduced the value of many family printing businesses.

The term obsolescence is used conjunction with real property. For example, economic obsolescence happens when a property becomes less attractive and less valuable due to location; functional obsolescence happens when a property deteriorates because of wear and tear or neglect or new technology (or a combination of all of them).

Obsolescence can be very important in determining the value of commercial real estate. For example, a small shoe factory, a single-purpose building that does not easily lend itself to other business purposes, may be both economically and functionally obsolete at the same time. A change in a traffic pattern -- for example, making a two-way street one way -- can profoundly undermine the value of a gasoline station on the wrong side of the street.

Widespread economic obsolescence can devastate a city and has an adverse impact on those businesses that remain functioning. For example, some 40 square miles of Detroit has now, for all intents and purposes, been abandoned, and economic obsolescence of the city as a whole is a major factor in the decline.

Economic obsolescence very often happens when a new highway is built parallel to an old one. The old highway becomes a secondary (or tertiary) road and businesses along it soon suffer economic obsolescence. Thereafter, some businesses -- for example, mom and pop motels -- may deteriorate, or they may be able to leverage the change in circumstance to their advantage.

Sometimes obsolescence works in paradoxical ways. For example, the computer made typewriters obsolete, but the few remaining typewriter repair shops in New York City have backlogs of work. As the number of jewelers who can service mechanical watches declines, those who remain are busy.

In a divorce involving a family business or commercial real estate, obsolescence must be considered.

For tax purposes, depreciation is an accounting concept, reflecting the decline in the value of a property because of wear and tear or obsolescence, and it can be calculated by an established formulas.

Obsolescence is not normally a consideration in selling a family home, which with reasonable care and maintenance appreciates in value.