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Accurate division of property depends on the valuation date

On Behalf of | Oct 18, 2011 | Divorce

One of the most complicated issues surrounding a divorce is the division of the marital assets. In order to determine the fairest division of properly, the most accurate valuation must be made for each piece of property.

Too make matters more complicated, in most cases the value of each asset will fluctuate over time. As a result, in a divorce the assets are valued at a certain point in time, also known as the valuation date. However, depending on the valuation date chosen, there can be a significant variation in the valuation of each asset.

The appropriate valuation date depends on the type of asset. Some assets are considered active, such as a business. This means that by active management of the business by one of the divorcing parties, the value of the business can either increase or decrease. In such a case, the valuation date would be set closer to the date of separation of the divorcing parties. This allows the business owner to reap the benefit of his or her efforts, or realize the diminished value if the business is neglected.

Other assets are considered passive if their valuation is beyond the control of the divorcing party, such as stock portfolios. In such cases, the valuation date is set close in time to the date of the divorce trial or settlement hearing.

In some recent divorces, courts have held that otherwise active businesses were passive assets when outside forces had affected their valuation. An example would be the ongoing recession, which has negatively affected many businesses. This can raise another uncertainty when divorcing couples are dividing property.

Add to all of this the fact that each state, including Colorado, has its own specific rules regarding property division. Generally speaking, the valuation date in Colorado divorce cases is set as close as possible to the date of the divorce trial or settlement hearing.

Of course, each party will seek to use the date that is most advantageous to them, so setting the fairest valuation date can be a crucial issue for any divorce in which there are substantial assets to be divided.

Source: Forbes, “How the Valuation Dates of Different Assets Are Decided During Divorce,” Jeff Landers, Oct. 12, 2011