You can work out your own division of assets and debts, perhaps with the help of a divorce mediator. When you do this, you can decide together what valuation date to use for each individual asset and debt. The valuation dates most commonly used are:
- The current date or
- The date of a recent financial statement or
- The date of separation.
Valuation Date Law
Part of making good, well-informed divorce decisions involves understanding what the law has to say. But divorce law exists mainly to guide judges in making consistent rulings. It does little to constrain what you decide to do in your own settlement.
A judge dividing your community assets and debts can be expected to follow the law. Family Code section 2552(a) says “in order to divide the community estate, the assets and liabilities must be valued as near as practicable to the time of trial.” The word “trial” here refers to the trial in court before the judge.
There may be situations in which the value of community assets or debts cannot be ascertained at the time of trial. Under these circumstances, trial courts are permitted some flexibility.
For good cause, the court may value all or some of the assets and debts at a date after separation and before trial. The purpose of doing so would be to accomplish an equal division of the community net worth in an equitable manner. But the court should not use such an alternative date (one other than a date near the trial) unless the court decides it’s the only way to accomplish an equitable division of the property.
Case law provides some circumstances that may cause a judge to adopt an alternative valuation date:
- Obstructionist conduct, such as a spouse’s refusal to deliver necessary documents for valuation of a community asset.
- Dissipation by a spouse of community assets after separation.
- Waste or mismanagement by a spouse of community assets, or other breach of his or her fiduciary duty to the other spouse.
- Lone hard work and actions by a spouse after separation that greatly increases value of the community estate.
- A spouse’s commingling of separate and community funds and assets after separation that makes it impossible to value an asset at the time of trial.
Case law indicates that good cause generally exists for a small business or professional practice to be valued as of the date of separation. This is because the value of the business is likely to be mainly a reflection of the efforts of the operating spouse. Valuing such a business as of the date of separation also relieves the concern that the operating spouse might deliberately devalue the business thereafter.
Interestingly, case law also indicates that the passage of many years from the time of separation until the time of trial is not a reason to change the valuation date of a passive asset, such as residential real estate, to the date of separation. The principle is that when an asset such as the marital home increases or decreases in value from nonpersonal factors, such as inflation or market fluctuations, generally it is fair that both spouses share in the change in value. Therefore, the residence should be valued near to trial.
Much of the information in this article was taken from the 2018 Judges Benchguide on Property Characterization and Division.