It is important to be knowledgeable when it comes to the valuation of assets in divorce. Specifically, the “when” on a value of an asset or debt can be important. In your divorce, you need the value of your retirement account, but what date should you look at? Last quarter or last year? This article discusses the valuation date, the when, that is involved with the value of an asset.
This year in particular, 2022, there has been a lot of decrease in everything; the market is down, a lot of real estate values and everything else are decreasing. The valuation date can be crucial in this context. For example, If you file for divorce and have minor children, there is a six month waiting period, so your divorce case can last for an appreciable amount of time. You could be getting divorced, and once you file, that process could go on for ten months, and sometimes even longer. I recently met with someone whose divorce case has been pending for over an entire year. The valuation date is becoming relevant to this person’s divorce case because they have assets. The assets include their houses, bank accounts, retirement accounts and other things that they own.
The question is- when to value those assets with the purpose of dividing them up in a divorce. Do you value them at the date that the complaint was filed? With the case I mentioned previously referring to the person who had a divorce case go on for longer than a year, would we be looking at what the value of his house was worth a year ago? Or the value of a retirement account one year ago? As you are negotiating a settlement in a divorce case, you have to determine what valuation date you are going to use. Their house is probably worth less than one year ago, and any retirement or other type of account that is invested in the stock market is certainly worth a lot less. You have to reach an agreement about whether to use a value from the beginning of the divorce, or some point during, or a value at the end. There is not always a clear answer of what should be used, although the most recent values are usually the fairest answer in a divorce.
Valuation can also come into play when looking at things such as property that you owned before the divorce. For example, if you have a pre-marital property and you want to know what the value of it was. You could be looking at what’s the valuation date on a house, bank account, and looking at if you owned it before the marriage or bought it during the marriage when you value it. You are going to want to know the context of that and know what your advantages are going to be. Is it to your benefit to use older valuation dates? It’s important to know if it will benefit you to use a time when these accounts were higher or lower. If you are trying to make a decision regarding retirement accounts and how to equalize them, you will need to know what statements are being used. A problem you can run into with valuation dates when it comes to accounts such as retirement, bank or investment accounts, is that the documents eventually become stale. If the divorce has been going on for a year and you haven’t been able to reach an agreement yet, and the last time you exchanged data on statements such as bank accounts was six months ago, you have to take another look at them. With the way things are going currently, 401k statements will be considerably lower than they were six months ago.
Another valuation question that comes up often with clients is, if I’m getting a divorce and it is pending for a year because it couldn’t be resolved, and I am contributing to my 401k during that entire year, are we using that when it comes to determining the value? The question becomes, does my wife now get half of those amounts that were contributed during the time between filing and completion of the divorce? Or should the proper valuation date really be the date the complaint was filed, isn’t that when we really went our separate ways? Once someone files for divorce is it really a marriage anymore? This is a valid question, and explains the basis for why people really make the arguments about the valuation dates. The main “why” is because they’re trying to get a financial advantage. The reasoning used is that because you filed for divorce a year ago, you should look back to the date of the divorce complaint be when you look at the value of the assets, and when things should be divided. It’s common that after filing that you really do not feel like husband and wife anymore. When there is a divorce case pending it’s not reasonable to call it a marriage because everybody knows it is coming to an end.
The next step is to think about whether there are any advantages when it comes to a specific valuation date. Does it benefit you to use the date of filing for the complaint for divorce? Were your account balances higher or lower then? The question I received this week was about the valuation of a house and when to value one. In this case, someone was coming out to do an appraisal on the house, and the person asking me the question about their house value felt as though they really should be using the value from one year ago. The divorce case was started a year ago, which is when the most significant things occurred, and when his wife left and moved out. My client wanted to use the complaint date, and it’s possible to do that. A real estate appraiser can do what is called a historic appraisal. Real estate appraisers can tell you the value of your house now, and they can also tell you the value of what your house was worth a year ago or even further back in time than that.
Another reason you might consider the value of your house historically is if you owned it before the marriage. You would need to know what your house was worth at the time you bought it, what it was worth when you got married, and what the house is worth now. This is because you are trying to protect that asset as a premarital asset. It’s important to know the three different values of the house throughout the timeline because you are trying to make a claim that you shouldn’t have to split half of the house with your wife because you owned it before the marriage.