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The Divorce Encyclopedia
Fair Value

Term Definition Fair Value - an appraisal price considered equitable or reasonable.
Application in Divorce Also called present value, fair value is used when there will not be a sale of a business entity, as in a divorce settlement, and it reflects the value as an established concern and the fact that the owner continues to enjoy the perquisites of its ownership.

It is important to remember that the only way to learn the fair market value of a property is to sell it. Fair value, on the other hand, can reached without a sale, and in a divorce action the fair value very often is what the divorcing spouses can agree is the fair value -- the number the two of the them will use for distribution of property.

Fair value has been described as "the price a seller who is willing but not compelled to sell would accept and a purchaser who is willing but not compelled to buy would pay." As such, fair value can be hypothetical, but it must also be fair and reasonable.

Establishing the fair value of a professional corporation demands an appraisal with so many factors that it is a speciality requiring the services of professionals, including divorce financial analysts. The fair value of a business also considers the earning power of the business. Establishing the value of goodwill also complicates the fair value appraisal.

The fair value of a business is not easy to calculate, particularly in the case of private companies, such as professional practices or a business already established by one spouse at the time the couple married.

In divorce actions, when no definite market value can be established and the evaluation of experts must be relied upon, fair value is the amount a property ought to return if sold to someone who is willing to purchase it under ordinary selling conditions.

See Fair Market Value.

See also Closely Held Corporation; Goodwill; Marketability Discount; Minority Discount.

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