Legal Definitions - clear value

Clear Value refers to the actual, net worth of an asset, property, or estate once all debts, liabilities, taxes, and other encumbrances or costs associated with it have been deducted. It represents the unburdened amount that is truly available or realized, free from any outstanding claims or obligations.

Here are some examples to illustrate this concept:

• Example 1: Inherited Estate

  A person inherits an estate with a total gross value of $1,500,000. However, the deceased had outstanding debts totaling $200,000, and the estate incurs $100,000 in estate taxes and administrative fees. To determine the clear value of the inheritance, these liabilities and costs must be subtracted from the gross value.

  In this scenario, the clear value of the inheritance for the beneficiary would be $1,500,000 (gross value) - $200,000 (debts) - $100,000 (taxes and fees) = $1,200,000. This is the net amount the beneficiary truly receives, free of further financial obligations related to the estate.

• Example 2: Sale of a Business Asset

  A manufacturing company decides to sell a piece of specialized machinery. The sale price for the machinery is $500,000. However, there is an outstanding loan of $150,000 secured by this specific piece of equipment, and the company incurs $25,000 in dismantling and shipping costs to deliver it to the buyer.

  The clear value the company realizes from the sale is calculated by taking the sale price and subtracting the outstanding loan and the associated costs: $500,000 (sale price) - $150,000 (outstanding loan) - $25,000 (dismantling/shipping) = $325,000. This is the net cash flow the company gains from the transaction after all direct obligations and expenses are settled.

• Example 3: Property Valuation for a Loan

  A homeowner applies for a second mortgage, and the bank needs to determine the clear value of their property to assess the available equity. The property is appraised at $800,000. The homeowner still owes $400,000 on their first mortgage, and there is a property tax lien of $10,000 against the home.

  The bank would calculate the clear value by deducting the existing mortgage and the tax lien from the appraised value: $800,000 (appraised value) - $400,000 (first mortgage) - $10,000 (tax lien) = $390,000. This $390,000 represents the unencumbered equity in the property that could potentially be used as collateral for the new loan.