Choosing a Valuation Date When Dividing Assets in a Divorce in Arizona

Valuation Dates for Appreciating, Depreciating, and Fixed Value Assets in an Arizona Divorce

Most people going through a divorce already know their assets will be divided in a divorce, but they may not know about choosing a valuation date when dividing assets in a divorce in Arizona.

Some divorce attorneys use the date the divorce petition was served on the other spouse by a process server as the date to value assets in an Arizona divorce. While other divorce attorneys may suggest you use the current date to value an asset.

The answer to the question of choosing a date to value assets in an Arizona divorce really depends upon nature of the asset being divided.

Specifically, a consideration in choosing a valuation date should include an analysis of whether the assets is an appreciating or depreciating asset or an asset, such as a bank account, that has a fixed and non-fluctuating value.

Valuation Dates Chosen by Appraisers in an Arizona Divorce

When the valuation date is chosen, appraisers will determine how much the asset is worth as of that valuation date. The valuation date chosen may have an impact on how much an asset is determined to be worth and how that will affect the overall division of assets between spouses.

Some assets, such as cars, tend to depreciate over time while some assets, such as a home, tend to appreciate over time. The passage of time, therefore, can impact how much those assets are determined to be worth in a divorce.

As a default, many people simply choose either the date the divorce is filed or the date the original divorce petition was served on the other spouse as the valuation date for assets. Although that may be good for some assets, if may be unfair when valuing other assets such as a business or investment/retirement accounts.

We are going to cover choosing a valuation date in a divorce when determining the value of a family business, personal property and cars, as well as for investment and retirement accounts.

Choosing a Valuation Date for a Business in a Divorce in Arizona

The Arizona Court of Appeals in the published decision of Meister vs. Meister addressed the analysis a judge should apply when choosing the valuation date of a business in an Arizona divorce.

In the Meister case, the court concluded both spouses had an ownership interest in a business and that business was community property.

Significant changes, however, occurred in the business after the divorce was started. Those changes had a significant impact on the value of that business. The Court of Appeals concluded the trial judge failed to take those significant changes into account when choosing the valuation date for the business. The result was a business appraisal one spouse believed was too high.

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Wife’s expert chose to value the business as of the end of the fiscal quarter that was closest to the date the initial divorce petition was served. He also opined that as of that date there was no reason to believe the financial performance of the business would be different than its past financial performance.

Although Wife’s expert was made aware the business had lost a major customer after the date he chose to value the business, the appraiser chose not to take that loss into consideration because that major business impact was neither known or knowable on the date he chose to value the business.

Husband’s expert chose a valuation date after the full consequences of the business loss of a major customer was realized.

The difference in the opinions of the business appraisals, based upon their different choices of valuation date, was slightly more than $1,500,000.00. This highlights how important the choice of a valuation date for assets can be in a divorce.

The Impact of Known or Unknown and Foreseeable or Unforeseeable Circumstances on the Valuation Date

Choosing a Valuation Date for a Business in a Divorce in Arizona.

The trial judge sided with Wife and her expert in ruling the subsequent loss of a major customer was not known or knowable when the divorce petition was served and, therefore, those subsequent changes should not be taken in to consideration.

The Arizona Court of Appeals concluded a trial judge has broad discretion to choose a valuation date to value the business. However, the chosen valuation date must result in a fair and equitable valuation of that business, based upon its prior decision in the case of Sample vs. Sample.

The Court of Appeals said there have been no decisions holding an asset must be valued as of the date the divorce petition was served. The Court of Appeals cited to an appellate decision from Virginia holding the valuation date should be that which provides the most current and accurate valuation. The Court of Appeals also cited a Florida Court of Appeals decision indicating the valuation date should be that which is the most just and equitable under the circumstances.

The trial judge chose a valuation date close to the date the divorce petition was served because that date best reflected the date both spouses participated in operating the business.

The Court of Appeals noted the trial court chose the earlier valuation date because the subsequent loss of a major client was not foreseeable as of that date. However, the trial court did not explain while the foreseeability or lack of foreseeability of losing that major customer justified using that earlier date to value the business. Going further, the Court of Appeals stated it was not providing an opinion on whether the foreseeability or lack of foreseeability of a major event impacting the value of a business justifies the choice of a date for valuing a company.

The Court of Appeals concluded there was no authority that the foreseeability of a future event affecting the value of the business controls the choice of a valuation date in a divorce in Arizona; although it may be a relevant factor a court should consider when choosing a valuation date.

The Court of Appeals concluded wasteful conduct of a spouse that directly impacted the value of a business can be considered when choosing a valuation date. However, wasteful conduct of a spouse that does not impact the value of a business should not be a basis for choosing a valuation date based upon that waste. A waste claim is designed to compensate the injured spouse for his or her loss and not, on the contrary, to punish the other spouse in a manner that exceeds the amount of the actual waste.

The Court of Appeals concluded there is no bright line rule in Arizona controlling the date a judge should use to value a business, but a judge should provide an explanation why the chosen valuation debt is fair and equitable.

Choosing a Valuation Date for Dividing Personal Property and Vehicles in a Divorce in Arizona

Choosing a Valuation Date for Personal Property and Cars in an Arizona Divorce.

Most personal property and vehicles depreciate over time, so it is likely best to value these items as of the date the divorce petition is filed or when it is served on the other spouse. If there is a debt associated with a piece of personal property or a car, the spouse receiving that item of property in a divorce should be responsible for that debt and should, in almost all cases, be required to refinance that debt to ensure his or her former spouse is not still liable to that creditor.

A problem may arise when the final division of personal property and cars doesn’t actually occur until long after the divorce petition is filed or served on the other spouse. This occurs when the spouses either reach a settlement dividing their assets long after the divorce was filed or is decided by a judge at trial because the parties could not agree on how to divide their property.

When this occurs, one of the spouses may be paying the debt on, for example, a car loan for many months after the divorce is filed. That spouse may seek reimbursement from the other spouse for making those payments in addition to seeking his or her share of the equity in that car. The payments, likewise, may increase the equity in the car by reducing the amount owed on that car loan. These considerations may, therefore, make a different date to value the car more fair and equitable.

Choosing a Valuation Date for Dividing Investment and Retirement Accounts in a Divorce in Arizona

Investment and retirement accounts inherently change value for several reasons. They can change in value because a spouse is contributing payments into the account, because the investments held in the account increase and/or decrease with changes in the financial markets, or because a spouse has employed unwise and risky investment decisions.

In most cases, these accounts are one of the last assets to be divided in a divorce because neither spouse knows how much cash either spouse may have to pay the other spouse to “equalize” the division of assets.

Choosing a Valuation Date for Investments and Retirement in a Divorce in Arizona.

For example, if neither party agrees upon or knows which spouse will be awarded the marital home, it may be unwise to liquidate the very same financial accounts that will need to be used for a spouse to pay the other spouse one half of the equity in the home.

Many attorneys include language in their settlement agreements indicating each spouse will receive their community property share of financial accounts as determined on the date of service of the divorce petition “plus any gains or losses thereon”. The use of the language “plus any gains or losses thereon”, effectively, makes the valuation date of these financial accounts the actual day the accounts are split; since the gains and losses can only be accurately calculated on the date the financial accounts are actually divided.

If you have questions about the valuation date for a business or other property in an Arizona divorce, you should seriously consider contacting the attorneys at Hildebrand Law, PC. Our Arizona community property and family law attorneys have over 100 years of combined experience successfully representing clients in community property and family law cases.

Our family law firm has earned numerous awards such as US News and World Reports Best Arizona Family Law Firm, US News and World Report Best Divorce Attorneys, “Best of the Valley” by Arizona Foothills readers, and “Best Arizona Divorce Law Firms” by North Scottsdale Magazine.

Call us today at (480)305-8300 or reach out to us through our appointment scheduling form to schedule your personalized consultation and turn your community property or family law case around today.

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Choosing a Valuation Date When Dividing Assets in a Divorce in Arizona

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