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How Do We Know The Valuation Dates for Assets in Divorce Cases?

One of the main issues in every divorce case is how to value the assets that are going to be distributed. For example, a home or business would normally be valued by an appraiser of such assets. But, for purpose of community property division, the question most people is what is the appropriate division date? This question is especially salient in cases where the separation period lasts several years. The rule in California is that assets are valued as close as possible to the date of trial. A caveat to that is that in some cases where it is fair and equitable, the court on noticed motion and in appropriate circumstances will order an alternate valuation date.

For example, if the parties separate in 2009 and they do not go to trial until 2014, the house they shared will be valued on a date as close to the trial date as possible. If the case is actually tried, the parties will have their appraisers testify as to the home's value and the court will have to make a decision based on the testimony presented

Employer-based retirement accounts such as 401Ks are divided along slightly different lines using the same principle. When a spouse contributes to a 401K during marriage, those contributions along with any appreciation for those contributions remain community property. When the parties separate, 401K contributions are considered separate property along with any and all appreciation on those contributions. So, the community property portion of the 401K will be divided as of the date of trial while the separate property portion will retain its separate property character.

The alternate valuation date I referred to earlier is mostly applied to businesses which are run exclusively by one of the spouses. These businesses are mostly professional services practices such as law firms, doctor's offices or any type of business that is dependent upon the sole efforts of one of the spouses. In these cases, the court upon proper motion will most likely order that the valuation date is the Date of Separation. The main reason for this is that the effort and work put forth (or sabotage – see below) post-separation is separate property.

Additionally, since the spouse has exclusive use and possession of that business, he/she has the sole discretion to undertake acts which either enhance or reduce the business' value. So, if an especially bitter spouse decides to damage the family business out of spite, the other spouse can file and win a motion for an alternate valuation date. So, the sabotaging spouse will completely own the effects of the damage he/she caused because he/she will be forced to purchase the asset for a price using a value as of the separation date.