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How do you value an oil and gas lease during a Texas divorce?


How do you value an oil and gas lease during a Texas divorce?

On Behalf of | Jan 25, 2022 | family law |

Finding a fair way to split up your property when you get divorced requires honesty and planning. If you and your ex want to handle the process outside of court, you will need to have a realistic understanding of the value of your major assets.

Community property means that you and your spouse will share the property and income acquired during your marriage. Your primary residence may well be part of your pool of community property.

While your home itself is likely worth thousands of dollars, the oil and gas lease attached to it could also be a source of ongoing revenue or added property value, depending on the circumstances.

How can you determine a fair and appropriate financial value for your mineral leasing rights when you divorce in Texas?

Industry professionals have a standard

If you were to talk to those working in the oil and gas industry, they might share with you a basic formula that many individuals and companies use to value these rights at different properties. They consider the current cash flow for that property and then multiply it by three.

While this approach can work well for a property already producing, it may not be the best solution for a potentially lucrative but as of yet untapped reserve. If there isn’t cash flow to use for an estimate, then you may need to look instead at what the lease itself will provide for the household in the next few years.

Even when there is cash flow, this model could undervalue the lease, which is important to realize. Establishing a realistic financial value for the property and not just looking at old paperwork or making assumptions will help you protect yourself as you plan for divorce.